Taking preventative action instead of waiting for a cure is often the best course of action in many different areas of life. And when it comes to avoiding bad credit, it is much safer to prevent a bad credit rating than trying to solve bad credit issues when you really need financial assistance down the line.
Your credit rating is one of the most significant components of your finances. Home loan lenders will use your credit score to determine whether you qualify for a home loan and landlords may use your credit rating to determine whether you will make a good tenant and pay your rent on time.
Having bad credit or a poor credit rating can have a large, negative impact on your life. Here are 3 simple tips that you can use to avoid a bad credit rating.
Pay your bills on time
One of the most effective and easiest ways to prevent a bad credit rating is to pay your bills on time. Late payments could easily be categorised by home loan lenders and other financial institutions as a sign of financial distress and thus your credit score will drop.
From simply forgetting to purposely ignoring, it’s sometimes easier said than done to pay your bills on time. So here are two ways to keep on top of your bills:
1. Each time you receive your paycheck, make an effort to sit down and check which bills are due and pay them right away. This will prevent you from spending money on other items and potentially coming up short when your bills are due.
2. Super simple but effective, keep a calendar of when your bill repayments are due. Whether it is on your phone or on a list stuck to your fridge, noting down the days that your bills are due will help in making sure they are paid on time.
Pay your bills in full
Credit cards and other bills often provide the option for minimum repayments. While the option is clearly convenient, as we get to slowly pay off the bill while saving money for other things, the longer a debt stays, the higher the interest rates will go. And the longer you are in debt, the higher the chances of a bad credit rating. Simply put, it is better for you in the long run to pay off your bills in full.
Avoid maxing out your credit card
Using credit cards responsibly will go a very long way to building your credit score and avoiding bad credit in the future. One of best ways to demonstrate to home loan lenders and other financial institutions that you are responsible is to avoid maxing out your credit card balance. Just because your limit is $5,000, doesn’t mean that you have to use $4,900 and still be regarded as a safe bet from a lender’s perspective. It is best to use 30% or less of your available credit in order to avoid a bad credit rating.
Have you been struggling to get into a home of your own because of financial difficulties? At No Savings our goal is to open the door to home ownership for as many West Australians as we can. We specialise in helping first home buyers who have had trouble obtaining finance before with our financing options. Contact us today and see if you qualify.