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As a nation, we love our credit. Mortgages, loans, cards, catalogues – together they add up to £57,937 of debt per household, according to the latest figures from the charity Credit Action.
But while our addiction to borrowing is sending 9,300 people a day to Citizens Advice for help in managing their personal debts, many others are doing just fine – paying off their credit cards each month as regular as clockwork and even finding a bit extra to chip away at the mortgage every now and then.
Could it be that some people are just born with an ability to balance their books, while others are doomed to watch cash forever trickle through their fingers?
Take Richard Branson, Simon Cowell and Katie Price, for example – they seem to have a talent for making money whatever they turn their well-manicured hands to. So are you like them? And what can you do if you aren’t? Read on to find out.
You have the credit gene if you…
• Know the balance and spending limits on your cards and loans and how much you still owe on your mortgage.
• Check your credit report regularly. This is the personal history of your credit accounts, including cards, loans and your mortgage, plus your repayment record. People who keep an eye on their credit report have a good overall picture of their financial commitments and how they’re coping, so when they make new applications they are likely to get the best offers. You can start managing your Experian credit report with a 30-day trial of CreditExpert.
• Pay off your credit card in full every month without fail.
• Are registered to vote at your current address. Lenders use this information to check that you live where you say you do – it helps to prove that a fraud is not taking place and can count towards your credit score. So, if you are credit savvy, you’ll be on the electoral roll.
• Close unused accounts, query anything unfamiliar, set the record straight – and check that the record on your credit report has been updated.
• Go through your statements regularly to be sure that nothing is out of place.
• Have savings because you want to be ready for retirement or a change in your financial circumstances.
• Look at your credit report before applying for new credit, so you have time to correct any errors, and always contact the relevant lender if you find an entry you disagree with.
• Take steps to protect your identity from fraudsters who use personal information to clear out accounts and borrow money in their victims’ names. For example, you shred sensitive documents, never share personal details with cold callers online or on the phone or subscribe to an ID fraud protection service to receive alerts whenever there’s a change to your credit report that could mean a criminal is after your identity.
You haven’t got the credit gene if you…
• Regularly go over your overdraft limit and don’t have a clue what it costs. This is an extremely expensive way to borrow – try renegotiating your limit or, better still, reducing your spending so you stay within it.
• Have just got to have that new bag, phone, or holiday, even though you’ve got to keep juggling your credit cards to pay for it. If you are using one card to pay off another, you could be getting yourself deeper into debt. Taking a look at your credit report will show you how much you already owe and will help you to work out which debt is growing fastest and should be tackled first.
• Don’t know how much interest you are clocking up on your loans, cards and other borrowing, such as catalogue accounts. Always check – you might get a nasty surprise.
• Pay more than you need to for everyday expenses. Price comparison sites, such as LowerMyBills.co.uk, are a quick and easy way of finding good deals on essentials, such as your energy bills, car and travel insurance and credit cards, so it makes sense to use them.
• Fire off applications for new cards, loans or interest free credit at random, in the hope that someone will say yes. Lenders search your credit report every time you make an application and leave a record, known as a footprint. If you accumulate lots of these in a short period, other lenders may worry that you’re desperate or even suspect a fraud.
• Withdraw cash on your credit card. The interest starts accumulating straight away, which means you are paying for the convenience of not planning ahead.
• Think it’s okay to delay or skip a monthly payment because money is tight. Late and missed payments stay on your credit report for three years, suggesting to lenders that you are unreliable and affecting your ability to get the best deals. If you’re having difficulties, talk to your lenders straight away – they are there to help.
• Are considering insolvency as a way out of debt. It doesn’t allow you to walk away from your problems, as it stays on your credit report for at least six years, warning lenders that you may let them down.
• Are embarrassed to ask for help and advice. You can get free, impartial guidance on your finances from organisations such as Citizens Advice, the Consumer Credit Counselling Service and National Debtline.
If you want to find out more about your financial management skills, start with your credit report. It will give you a snapshot of your position and help you to work out where your money is going. You can see your free credit report with a 30-day trial of CreditExpert.
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