If you are looking for a loan, such as a mortgage or credit card, then the lender will do a credit check. If they feel that your credit record is not good enough then they will not lend to you. This means that it is important to make sure that your credit score is the best that it can be. Firstly, you should check what is on it. You can do this for free and it will not should on your credit record that you have checked it. Make sure that all of the information is correct. If it is not then it is important that you get it changed. If it is then you can see what you can do to improve it.
Improving your credit score
Improving your credit score can be quite tricky. Firstly, lenders have different criteria when deciding how to decide who to lend money to. They do not all look for the same things in a credit record. This means that it is impossible to have the perfect credit record. However, you can apply some common-sense principles. For example, if you have a lot of unpaid debts then this might reflect badly as lenders may see you as more of a risk. Therefore, it could be wise to reduce your debts. However, owning a credit card that you repay in full each month, would perhaps not matter as it shows that you are capable of making repayments and the fact that you are repaying in full, on time, will show that you are responsible. However, if you have ongoing debts like an overdraft or you are behind in loan repayments then you need to address this or else it will not be looked favourably on by potential lenders.
It is therefore good to take a look at what types of loans you have and which you should consider reducing. An overdraft is probably one of the most expensive ways to borrow and so could be a good one to start with. Perhaps unpaid credit cards could also be a good place to try to reduce your debt. If you have long term personal loans, then repaying them could be harder as you may have borrowed a significant sum of money. If you can ensure that you make the repayment on time and in full then this will be helpful.
Of course, working out which debt to repay and in what order is one thing, but you then need to find the money to do so. This can be difficult, especially if you have lots of debt and the expense on interest payments on it all. However, it can be a great relief to get your finances in order and repay some debts. Therefore, it could be wise to prioritise things and try to concentrate on the debts rather than spending money on other things. It could be worth making sure that you only spend money on the essentials for a while and that you use any spare money to repay your debts. You may need to consider others ways of earning money if you want to make a significant impact. This could mean that you might need to consider changing to a better paid job or working a second job to earn more. You may be able to do extra hours in your current job or you may need to find other work, perhaps freelance work or online work to earn more. Once you start earning more and spending less you should be able to reduce your debts.
Once you start paying off debts you should find that your credit record will improve and it will make it easier to borrow. However, you might want to be more wary about your borrowing. Keep in mind how much hard work it was to repay the debt and that will allow you to be able to decide whether you want to take on more debt when it could be as hard, if not harder to repay it. It can be wise to work out if the debt is good or bad debt and this should help you. If it is good debt, such as using a mortgage to buy a home, then this could be worthwhile as you will save a lot of money in the future on rent. However, if it is bad debt, such as borrowing to buy luxuries that will not last, then consider whether all the work to repay the loan will be worth it. If you do decide to go for a loan make sure that it is the right one for the job, that you only borrow the bare minimum and that you compare lenders so that you take the loan that will give you the best value for money.