The Importance of Good Credit Following a Separation
These days the idea of paying for everything in cash has largely fallen by the wayside. We’re a country that runs on credit. We make monthly payments on our cars, have mortgages that stretch over 30 years, buy items with credit cards and store cards. Credit makes the modern world go round.
However, separation and divorce can have a bad affect on your credit rating, which is one of the most important financial tools you have. Although, unlike the US, landlords don’t check your credit history when renting you a place to live, bad credit can be a blight on your life.
Your Credit FileRegardless of your situation, you need to check your credit file regularly. You can apply to Experian or Equifax, who will send you a copy for just £2. Check it every six months; this is a good way to ensure all the entries are correct and that no one is trying to open accounts in your name.
If you disagree with any of the items, you can challenge them in writing, and if there are extenuating circumstances, you can ask that a note be appended to the file.
Paying Off Credit DebtsTo keep a good credit rating, it’s important that you make your payments every month. The best way is to pay what you owe in full each month, but if that’s not possible (which is the case for many), then at least pay the minimum balance, and more if you can afford it; the minimum balance won’t really lower the amount you owe, just keep it ticking over.
Make sure you pay on time, since late payments indicate to potential creditors that you might not be reliable, making them reluctant to extend you credit when you need it.
Don’t carry too many cards. Not only are they a temptation, but they’re unnecessary. If you have a card you don’t use, with nothing owing on it, cut it up and cancel it (and make sure it’s removed from your credit file the next time you check).
You might think the ideal situation is to owe absolutely nothing, but today that’s not quite the case. You need a good credit rating, so ideally owe short-term debt (other than your mortgage and car payments) which is paid off fully each month.
Obtaining CreditSome people who become separated or divorced might not even have a bank account. To establish yourself, begin by opening a bank account and have your salary or any other income paid into it.
Obtain a credit card. The limit can be low, say £200 for instance, but use it carefully and be sure to pay it off in full each month. That way, not only does your credit rating look good, but you avoid heavy interest charges on the balance.
If you share a house or flat and a utility like the phone is in your name, make sure it’s you who pays the bill. Don’t rely on your housemate to do it. If they forget, the reflection is on your credit file, not theirs. You need to take responsibility.
As long as you pay on time, and your income is adequate, you should find it relatively easy to obtain a loan if you want to buy a car, for example. Further on, if you’re ready to buy a house, good credit will make it a lot easier to get a mortgage.
Bad CreditIf you have bad credit, you need to repair it. There are companies that advertise such services, but what many will do is move you directly to an Individual Voluntary Agreement, which can indeed slash a lot of what you owe and make payments reasonable and eventually leave you debt-free. However, it’s not always the best alternative. Several non-profit agencies exist that can help you explore your options free of charge.
In among the other issues you have to deal with, good credit might seem like a minor thing. Looked at for the long-term, however, it’s vitally important, and remembering that and acting on it will help you in the future.