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Will Being in Debt Help my Credit Rating?

by Paul

There are mixed messages with regards to what will help or hinder a credit score. This is partly because different companies have different ways of calculating your credit score, but it is also because some people want to convince you that their particular product will help so that you take it out. It is very wise to be careful when thinking about credit ratings.

Debt and Credit Ratings

It is true that a potential bad credit lender, landlord etc will want to take a look at your credit rating to find out whether they can trust you. They will want to see whether they can rely on you being able to repay the money that they have lent you or pay your rent each month. They will often therefore, look for evidence that you are capable of making regular payments. This means things like payment of rent, utility bills or it could be regular loan repayments. If you are not missing any of these payments, they will see that as a positive sign. However, if you miss any repayments, they will usually see this as a bad thing. There are rumours, that some lenders like to see a person miss a repayment or two because they know that if they do this with their loan, they will be able to charge them more money and gain from them. Whether this is true or not is hard to say and a landlord will certainly not want to see this. It is usually better, both for you and your credit rating to make sure that you pay everything on time, as you will save money and you will also prove that you are reliable. If you have not had a loan before, you cannot prove that you are capable of repaying and this can lead some people to think that it will be worth taking one out. However, this could backfire if you struggle to repay it and if you are already making regular payments, perhaps on mobile phone contracts, utility bills etc, then this should be enough to provide evidence that you can be trusted without taking out a loan. The cost of the loan will not be worth it.

Male hand putting a coin into piggy bank

Alternatives to Improving Credit Rating

There are alternative things that you can do which can improve your credit rating which do not involve borrowing money and will therefore be safer. Check your credit rating to start with and make sure that all of the information on it is correct. Then look at it and see whether you have things in there which go in your favour, such as you name on utility bills etc. If you do not, then see whether you can get this changed. Perhaps swap some of your household bills into your name or joint names so that you have some evidence that you are jointly responsible for making regular repayments. It could also be wise to make sure that you are repaying any loans you have on time and perhaps even trying to repay them early. It is also a good idea to see whether you can earn more money as your earnings are also a big factor in your credit score. So, whether that means doing more hours to get more pay or taking on a more permanent job this could all help you out. Getting more income will not only help your credit score but it will also be good for you as well as you will have more money available to spend on things and you will be less likely to need to borrow money as well.

Should I Extend my Overdraft?

by Paul

Many of us have overdrafts and the bank or building society will set the credit limit, meaning that we will only be able to borrow a certain amount. However, at times, they might offer us the option of being able to make that amount larger or we might consider requesting one or even switching to a bank that will give us a larger one. However, it is worth thinking this decision through carefully as it may not be the best for us.

Cost

If we have more money available to us, then it is very likely that we will spend it. This means that we will have to pay more out as we will pay interest on the overdraft as soon as we take it out. We need to think hard about whether having the extra money will be worth it. If we think that we will be tempted to use it when we do not really need to, then we might end up paying out a lot in interest which we could have avoided by not taking the opportunity to have a larger overdraft.

Peace of Mind

It could be that having the opportunity to borrow more money could mean that we will feel better. Knowing that we have access to money if we need it could give us peace of mind. If we suddenly need money, then we may not have the time to arrange a loan and knowing that it will be there if we need it could help.

Credit Record

When you borrow money it will show up on your credit record. This is not always a bad thing, if you can show that you are repaying your debts. However, with an overdraft, there are no regular repayments or pressure to repay, which means that there is a possibility that the debt could go on for a long time. This means that you need to be aware of this and make sure that when you do borrow money using the overdraft, that you do have a plan for repaying it and make efforts to do so as soon as you can. An overdraft will be repaid as soon as money gets paid into your current account. This means that when you next get paid it will be paid off but you need to think about whether that money will be enough to repay the overdraft and leave enough to pay for everything else that you need to buy as well, or else you could end up having to go overdrawn again. If you do this each month, you may get to the stage where your salary is not enough to repay the overdraft and there will be nothing at all to pay the bills, so make sure that you are careful.

Spending Spree

Some people feel that an overdraft is their money to spend. That they can go on a spending spree and treat themselves to all sorts of things with it. What they do not think about is the fact that the money is a loan and belongs to the bank and not to them. Not only does it need to be repaid but it will also be charged for. This means that for as long as people are in debt, they will be being charged interest and therefore paying for the privilege of having this extra money. It is therefore wise to think about whether you are likely to be the sort of person that will spend it like this or whether you will be sensible and just leave it for emergencies and use that to help you decide whether it is a good idea or not.

What are the Cheaper Alternatives to Overdrafts?

by Paul

It is always a good idea to compare borrowing options before you actually borrow any money. This is because you will otherwise find that you could end up spending more money than necessary. Sometimes the interest rates, costs and fees of borrowing can be very much more expensive for some types of loans than others and although they may provide a very different service and that explains the cost, it is good to make sure that you feel they are offering good value for money. So, with an overdraft, you will find that it is extremely convenient to use once it is arranged as you will be able to get the money as soon as you need it. However, you may feel that the 35% – 40% interest rates are too high and that you would like to try to find something cheaper. There could be some enticing alternatives.

Credit Card

Some credit cards do have very high interest rates but some will be cheaper than an overdraft. You will have to take a look and compare them t make sure that the one that you are choosing is lower. A credit card can be handy for when you are buying online or from high street shops as most will accept them as a form of payment. However, if you use a credit card at a ATM then you will often be charged and you will have to start paying interest on that withdrawal right away, which means that you will find that it is an expensive way to get cash. However, when you use it in shops and online, you will be charged no interest immediately. You will receive a statement and that will tell you how much interest you will be charged and when but you will get the option of paying off what you have borrowed before a certain date and you will be charged no interest if you manage that. You will also have the option of repaying just a small payment which covers the costs and a little more and then you can leave the debt outstanding as long as you wish but you be charged for that.

Store Card

A store card is similar to a credit card in the way that you are charged interest. You will only be able to use it in limited places, normally only in branches of the store that issued it. You will also not normally be able to use it to draw cash. However, you can use it instead of paying for items in that store and you will be able to delay payment until your statement arrives or even longer if you want to pay interest on it. The interest rates could be higher or lower than an overdraft, you will have to check this as they will vary between different store cards.

Personal Loan

A personal loan from a bank or building society tends to have lower interest than an overdraft. However, they might need to be for significantly higher amounts of money. The specific amount will depend on the lender, but often there a large minimum that you will have to borrow. This could seem good because you will have more money to spend, but it means that it could take longer to repay the loan. Even if the interest rate is lower, the loan could cost more because you have it for longer and you are paying interest on a larger amount of money. Therefore, to properly compare the cost, you will need to calculate it in monetary terms and then compare that.

Should I Worry About my Credit Card Debt?

by Paul

If you have credit card debt, then you may wonder whether it is something that you should be worrying about or whether you should be more relaxed about it. It is good to have a think about it and see whether it is a situation that you should be doing something about or whether you should not be focussing on it right now.

Do you Have Other Debt?

It is wise to start by thinking about the other debt that you have. If you have lots of different debts, then it should really be the most expensive ones that you should be concerned with to start with. Therefore, it can be wise to find out the cost of all of your loans and think about which ones you might be best off repaying first. The one that is costing you the most money is probably the best one for you to be focussing on and not worrying about any other loans you have until that one is paid off. Therefore, it may be best to just keep paying the minimum on the credit card and repaying the other loans instead. However, if you have no other debt, then it should be the card that you are considering paying off.

What Should I be Doing?

It can be wise to consider stopping using the card. If you have a lot of outstanding debt and you are not managing to repay any of it then this could be very wise. If you are repaying some of it, then perhaps using the card a little will be okay, but it is worth making sure that you are only using it when you really have to, perhaps when buying online because you want the security that it provides for you. You should also be focusing more on repaying your debts. Think about ways that you can start to do this. It might be that you can cut down spending on luxury items so that you can use some of that money to pay off some of the money that you owe. You may also be wise to start comparing the prices on the items that you buy to make sure that you are not overpaying. Then you will be able to use the extra money that you have to be able to pay more off the card. Hopefully, you will be able to pay it off pretty quickly and that will enable you to be able to then be at a point where you can decide whether you think it is a good idea to still have the card or whether you should get rid of it so you cannot get into the same situation again.

Should I be Worried?

It is best not to worry yourself with things like this. Worrying is really bad for our health and often means that we end up not doing anything. We can end up feeling overwhelmed and then just not be able to cope with doing anything. It is much better to be proactive and make plans. Think about solutions and things that you can do to improve the situation and help yourself to feel better about it. Even if you can only start repaying very small amounts, just making a bit of progress can help. So, although it is useful to realise that something needs to be done and it is good to make steps to improve your financial situation, you should not get overly stressed about it. Just come up with a plan and make small steps towards paying off the card in a manner that you can cope with and is affordable. It might take a while, but hopefully you will be able to feel a lot better knowing that you are doing something to improve your situation and that you are slowly reducing the debt on the card so that you will soon have it paid off.

How Much Mortgage Deposit Should I Save?

by Paul

It can be difficult to know exactly how much of a mortgage deposit you should save up. There are different ways that you can work out and it is good to think about all of these and then use them jointly as a way to decide how much to save.

How Much the Lender Wants

It is a good idea to have a look at different mortgages and see how much money the lender is likely to want from you. You may find that most mortgages are fairly similar and it is likely that you will need a deposit of around 10% of the house price. It is good to check this though, particularly if you have a specific lender in mind. Then you will be able to start planning better as to how much you will need to save. You should be able to get a total in mind.

How Much the Property is Worth

You will also need to think about how much the home that you are likely to want to buy will be worth. It is good to take a look at the current property market and see how much different places are selling for and this will enable you to be able to get an idea of how much a home will be that you might like to buy.

Armed with this you should be able to work out a figure as to how much you will need to aim for with your savings as to how much the lump sum will need to be. Now you will have to figure out how long it will take you to get it.

How Much you can Afford

You will need to have a think about how much money you will be able to afford to save each month. It is important to try to save as much as you can, but you will have other things that you will need to pay for as well. Therefore, it is a good idea to note down all of those things that you will need to pay for and then add them up. Then you can take that total away from the money that you have coming in each month and you will see how much you have left to save. Of course, you can change the amount that you are spending by buying less things or cheaper things and that could help you to spend less money and have even more available to save. You may also need to consider finding a way to earn some extra money if you want to save up more quickly.

It is always a good idea to try to find a way to save a bit more deposit than you have to. Unless the house of your dreams is within touching distance, then it can be better to delay buying and save up a bit more money. This will allow you to be able to take on a smaller mortgage. The advantage of this is that the mortgage will be cheaper because you will borrow less and therefore pay less interest as interest is charged as a percentage pf the amount that you borrow, so the more you borrow, the more interest you have to pay. Therefore, if you can save up extra money then you will save money in the long run and so it can be wise to put forward more than the minimum amount towards the deposit. This is something that is allowed and could make a huge difference. It could mean that you can pay lower repayments each month which will make them easier to manage or you can repay it over a shorter time and pay it off more quickly.