How Much Notice do Lenders Really Take of Credit Scoring?

It can be tempting to think that lenders do mind too much about your credit score. We hear that lenders are lending out lots of money so might think that they will be happy to lend to anyone. We may also hear that some lenders like it when a person misses a repayment because they are then able to charge them more money. However, you need to be very careful what you believe.

What Lenders Look for

Lenders might be looking for different things when they are looking at your credit report. There is not one model credit report they use as reference, they don’t have a scoring system and give you marks for different things, they all look out for different factors. This makes it pretty hard to know precisely what to do, but there are some things that they will dislike seeing. They will not want to see that you have recently been turned down for a loan because that might make them think that there is reason for them to turn you down and so they might turn you down really quickly, without even looking carefully at your report.

Another thing that will be off putting for them will be if you have applied for lots of loans recently. They will see that as an indication that you are struggling for money a lot and they might feel that indicates that you are not managing your money well and they therefore might feel you wont be able to repay them if they do lend to you. They might also feel that if you already have a lot of loans, you might struggle to repay theirs as you have some many other financial commitments.

They will want to see evidence that you are making regular payments, even if you have a bad credit record. This might be loan repayments or it could be bill repayments, contracts or even insurance. They will like it if you are making these payments each month because it will show that you are capable of being organised with your money and are more likely to be able to repay them.

What to do

The first thing to do is to take a look at your credit report which you can do for free. Then you need to carefully examine it and make sure it is correct. Sometimes lenders will not report when you have repaid a loan, for example, so you will want to make sure that this has been done and that everything else is correct. Then look at it and see whether there is evidence of you making regular payments or repayments. If there is not, some people will automatically think that they should take out a loan to prove they can repay it. This is not a wise move though as it is risky and if you cannot repay it your credit report will look worse and it will cost you money. It is much better to have your name put on some utility bills or things like this. Make sure that if it is a bill that someone else pays, that it always gets paid on time, or else it could actually make your credit report look worse.

If you have lots of loans, or have missed payments or repayments in the past then you cannot undo what has gone before. However, if you make sure that form no on, payments are made on time, then this will start to improve things. It could even be better to work on repaying some of those loans. This can impress potential lenders as they will see that you are capable of being responsible and prioritising your spending.

Should I Choose Reward Credit Cards?

There are lots of different types of credit card available and it is sometimes a bit confusing knowing which to choose. As we all have different needs with regards to borrowing, then there is not an obvious card which will be the best for everyone. Therefore, you will need to think about your needs when deciding whether a certain type of card will work for you. One example of a type of credit card is a reward card. A reward card might sound really fantastic, but you will need to think about whether it will work out well for you.

What are Reward Credit Cards?

A reward credit card is one that will give you something back for using the card. This might be cashback, vouchers or other things. They do not all work in the same way, but generally you will find that in exchange for spending money using the card you will get things back. So you might get a percentage of what you spend in cash or vouchers. It means that you can actually be paid for using the card which can seem like a really great thing.

Risks of Using Reward Cards
There are risks though. If you get more back in return, the more you spend on the card, it can be very tempting to use the card a lot. This is okay if you are using it for things you were going to buy anyway and perhaps using a card instead of cash or a debit card. However, it could be the case that you are tempted to justify spending more money because of the reward. It is so important to remember that the reward will only be tiny and spending extra money will mean that you are paying out a lot more compared to the very small amount that you get back. Therefore, if you thin that you are the sort of person that is likely to use a potential reward as excuse for spending money on things that you do not really need, then it could be wise to avoid this sort of card.

You may also find that the interest that you are charged on this card, will be higher than other credit cards. This may not always be the case, but often the lender will want to make back the money they are giving away, by charging more for interest. If you do not repay your card in full each month, then you will be paying interest and you could find that you will be paying a higher rate and actually if you went to a lower rate card you would be much better off even if you allow for the rewards that you have been getting. If you intend to repay in full each month, then it could be fine, but make sure that you are confident that you will do this. Set up a direct debit so that the payment gets made automatically and then there will be no risk that you will forget to pay it.

So, you can see that a reward card, can be really worthwhile and it can even give some extra money. However, you do need to be very aware of the disadvantages and make sure that you are confident that you will always be able to repay it in full each month and that you will not be tempted to use it as an excuse to spend more money than you can afford. Make sure you track your spending so that you know that when you need to repay it, there will the money available to do so.

How to Repay Credit Cards Easily

If you have credit cards, then it can be a good idea to make sure that you repay them as quickly as possible. This is because this will make them a lot cheaper as you will not be paying interest for so long. Ideally it is a good idea to avoid paying interest completely and there are a few things that you can do which will make this easier for you.

Set up a Direct Debit

If you have no outstanding credit card debt, then set up your credit card so that you repay the full balance each month. If you do this you will never pay any interest (except in exceptional circumstances). So set this up so that the money leaves your account just after you are paid and then you will know for sure that the money will be there for you to use. The card issuer will be able to organise this with you so that you choose a date that suits you and they will be happy to set it up for that date each month as they will want to give you the best opportunity to repay the card too.

Keep Track of Your Spending

You will need to keep a track of your spending though. You will need to make sure that you do not spend too much or else you will struggle to repay it in full. You may not have enough money to pay it or even if you do, you may find that you will not have enough money to cover everything else that you need pay for. Therefore, make sure that you do not get carried away with your spending because this could mean that you will end up nor managing to pay for everything that you need.

Pay More Than the Minimum

If you already owe money on the card and cannot afford to repay it all in one go, then there are things that you can do to whittle it down. The first step that you can take is to pay off more than the minimum amount each month. The minimum amount tends to cover the interest and only a little bit more money which can mean that you will take a very long time to repay everything that you owe. If you keep using the card, it will take even longer. Therefore, it can be a good idea to stop using the card if you can and repay a bit more than the minimum amount each month. You can easily arrange this with the card issuer and tell them how much you would like to repay. Even if it is just a little more, it will allow the card to be repaid more quickly. The great thing is that each month you will be charged less interest because you owe less money and so the money you would have paid in interest will be repaying the loan instead so you will pay off greater and greater chunks each month.

Of course, if you want to pay off significantly more money you might have to think of ways to get more. It could be worth thinking about whether you have savings that you can use or whether you could earn more in some way. Perhaps selling things you no longer need, taking on a second job or doing more hours in your job could be things that will help you to be able to pay off some more of the credit card. It might also be wise to have a look in to your spending and think about whether you can reduce what you are spending in any way. Perhaps you might want to compare prices and see whether you can buy things for less or you could try to cut down on the amount of things that you buy.

Should I Repay my Overdrafts?

If you have one of more overdrafts then you may wonder whether you should think about repaying one or more of them. It is worth thinking about this because it could make a big difference to you. Consider the advantages and disadvantages of repaying the overdraft early and this will help you to be able to decide whether it is something that you should consider doing.

Advantages of Repaying Early

When we borrow money there will always be a cost to this as the lender will charge us. This means that if we are able to repay the overdraft, then we will save the money that we would otherwise be being charged for it. Overdrafts tend to be charged at 35% – 40% interest and so it can be quite a significant amount of money that you will be paying out for them and therefore you need to make sure that you think hard about whether you want to pay that out or whether you would rather repay the overdraft and no longer be paying. It can be worth actually calculating how much in pounds, you are paying and thinking about what else you could do with that money.

It can feel good to know that you do not owe any money and so by repaying a debt, it can feel good. It is nice to know that you are no longer paying out those charges as well and that you are only spending money that you have actually earned.

It can also be useful to have an overdraft available as a backup. If you know that you have not used the overdraft, then it is there as an emergency back up for you to be able to use if you need it. You need not worry about what might happen if you need money in an emergency as you will know that the money will be there if you need it.

Disadvantages of Repaying Early

An overdraft will get repaid when money enters the current account that the overdraft is associated with. This means that it will get repaid automatically when your salary or other payments go into the account. This means that many people will just wait for it to be repaid like this rather than paying early. They feel that if they work hard to find the money to repay it sooner it will be difficult for them. Of course, you will have to find the money from somewhere and this could mean that you might need to use savings, try to earn more or spend less elsewhere in order to be able to afford it. You may not be able to do this or you may find it difficult. For example, you may have no savings or you may have worked hard for your savings and not want to part with them like this as perhaps you are saving up for something specific. It could be difficult for you to work extra hours, perhaps due to family care commitments or because you find work too stressful. Spending less could also be tricky if you are already quite stretched spending wise.

You may also use money to repay the overdraft and then find that you need it for something else. This can be quite annoying, although it is worth remembering that the overdraft facility will still be there, so if you do need to use it again, you can. Having repaid it for a period of time will mean that you will not be paying interest for that time and that means that you will have more money available for other things and if you do need to borrow it could be less as a result.

Is Where I do my Banking Important?

It can be easy to stick with the same bank all of the time and not really worry about whether we should be swapping to another one or not. It can certainly be easier to just stick with the one that we are with and just not think about it. However, there are some reasons why it might be a good idea to think about what other banks are offering.

Interest/cost

Banks will vary in how much they will charge you for loans as well as how much they will pay you in interest on your savings. This means that you might find that you will be better off if you move to a different bank. However, it is worth noting that some banks will be better for certain products than others and so it makes more sense to choose certain banks for certain things. This means that rather than swapping completely and moving your current accounts, savings, credit card, loans and mortgage all to one place, compare them for each item and see whether it might be better to have each with different banks. This could be a bit more complicated, but it could mean that you will end up with a much better deal financially. Some accounts we may not access a lot. Things like mortgages, we may just leave alone and let the payments just go out each month and so it may not matter if it is with a different bank that we do not access a lot. So, have a think about what might work out for the best for you.

Customer service

It might be that customer service is important to you. You might like to make sure that the bank that you are with will treat you well as a customer and that you will feel valued and you will be able to get the help that you need if you need any. Knowing that you can contact the bank in a way that is convenient for you and that you will get a good response to any questions and queries that you have will be important to a lot of people. You might like what you get with your current bank and hope that you will be able to get a similar service with another one and therefore might be concerned that you will not. However, it is always possible to contact a customer services department before taking out a product so that you will be able to find out what they are like in advance.

Convenience

It is also important to think about how convenient the bank is to use. If you are taking out a product that you will not really need to do much with then this may not matter. However, for a current account, you may want to be able to do transactions, check balances and things like this and be able to do it in a way that suits you. You may like to be able to do this online or perhaps over the telephone or in a branch or you may like the option of being able to do all of these. Of course, this will be determined by whether you have a local branch of the particular bank and what options they offer with regards to operating the specific account that you are interested in.

So, you can see that there could be quite a few reasons why switching to a different bank might be helpful for you. It is a good idea to think about what you are looking for in a bank and what you need with regards to specific products and you will be able to see whether you feel that there are better options available for you than what you are currently using.