Feature photo cred goes to Paula Vengeance Photography on Flickr.
Today, more people than ever before are borrowing money. As of August 2016, the average borrower struggling with debt in the United Kingdom owes a whopping £17k, according to figures from UK debt charity PayPlan reported in ThisIsMoney.co.uk.
But if you have never been in any debt it can be just as difficult for you to borrow money. Credit checks don’t only see extensive borrowing as a red flag, they also raise suspicion over no debt at all – it gives the lender no clue as to whether you’re responsible enough to pay it back.
Staying away from lending money is fantastic, no doubt about it. But you can’t hide from being credit checked forever; perhaps you’ll need to take out a new smartphone contract, or a check will be run before you sign the rental agreement for your new home. Maybe one day you’ll find yourself in a situation where borrowing money is simply unavoidable. Having no history of successful debt management will likely stand in your way.
So, what can you do to change that? Let’s find out.
Make Sure You Pay All Your Bills on Time.
Even if you don’t have any lines of credit to repay, making all your household bill payments on time will strengthen your credit rating; it gives creditors some proof that you’re good at staying on track with your finances.
On the other hand, missed payments can cause damage; this will make it even more unlikely you’ll get the answer you want when applying. Basically, creditors won’t see any point in lending to you if you can’t even pay for your electricity bill.
Only Apply for Credit You’re Sure You’ll Get.
Or at least as sure as you can be, anyway. Since being rejected for a loan can harm your credit rating, the last thing that you want to go and do is apply for anything and everything until somebody says yes.
Keep this in mind: Some lenders and financial comparison sites have recently introduced an eligibility checking tool for prospective borrowers; if there’s one available always use it first. This will give you the opportunity to get a better idea of whether filling in the application is worth your while.
Only Borrow a Small & Manageable Amount.
As a new borrower, you’re probably going to be faced with a resounding ‘no way!’ if you apply for the latest BMW model on finance or try to take out a mortgage. So, don’t expect to borrow a huge amount for your first time.
Apply to take out a SIM only phone contract, sign up for a store card, or get a special ‘credit building’ credit card with a low-ish limit. You’re more likely to be accepted and when you repay on time you’ll be rewarded with a nice little rating boost.
Get Yourself on the Electoral Roll.
Lenders get excited when they see you on the electoral roll as a prospective borrower since it proves that you have a stable address.
Let’s face it, if you were going to lend somebody a grand, you’d want to be sure they weren’t unable to afford somewhere to live first – otherwise, how are they ever going to find the money to pay you back?
With quick and easy sign-up available online, you can have your credit rating on the road to improvement in no time. But, be careful if you move around a lot – this can go against you.
When You Finally Get Some Credit, Stay On Top Of It (For God’s Sake).
So, you’ve borrowed money for the first time – super! But, before you treat yo’self, remember that although you’ve now got some more funds to play with (or maybe a shiny new phone contract), you’ll need to be extra careful about maintaining your score.
Once that cold hard cash has changed hands, it’s crucial to make at least the minimum repayment each month. Failing to will damage your credit rating severely; it could even result in borrowing more being impossible for you in the future.
Remember; lenders are usually happy to work out an agreement with you if you find yourself struggling to pay.
Being debt-free is awesome! But if you need to borrow money, it always helps to know that you can.