Money mindsets

You may be pretty good at taking care of your cash but does your mindset make for a cracking credit score?

Why your credit score is king

We’ve all got one but it’s impossible to see or touch. Take care of it and you’ll find it easier to bag a cheap smartphone deal, get car insurance, switch energy supplier or even buy a home. Ignore it and you run the risk of rejection from any of these – or shelling out far more than you need to for a loan, credit card or mortgage.

What is it? Your credit score. It’s what banks – including us – and many companies use as a key factor to work out what kind of customer you’ll be when you borrow money and how much of a risk you may represent.

Think of it as your financial reputation which, like all reputations, takes time to build – and it’s especially tricky if you’re young with little financial experience.

Here are six tips to start you off on the path to a better credit score.

Make history by regularly spending on a credit card…(but repay in full on time)

A credit score reveals how good or bad you are at borrowing. It’s monitored by so-called credit reference agencies who can see your financial data – bills, income and debts for example - and calculate a score based on your behaviour.

But this can throw up a conundrum for younger borrowers. Relative youth means little or no debt, which gives no meaningful credit history for lenders to look at – so borrowers can miss out on the best deals and be unable to boost their score.

One way for a borrower to show they can manage credit is to start using a credit card to pay daily expenses – for groceries, bus fares and lunch, say – and then pay it off in full on time each month. The card provider will then report the prompt payment history to the credit agencies, plus there’s no interest to pay.

Watch out for mistakes you didn’t make
Credit reference agencies hold huge sums of data about your finances, and errors can creep in to damage your score. A default made by someone with a very similar name might be wrongly applied to you; a mobile phone bill marked as late when you paid it on time; or the same debt listed twice.

At least once a year, check to make sure it’s free from errors – and especially if you plan any major application for credit e.g. your first mortgage. Contact the credit-reference agencies Experian, Equifax or TransUnion to see a copy of your credit file. If you find a mistake, you can appeal to have it corrected or ask for a note to be added to your file to detail any special circumstances.

Make sure you register to vote
Your name on the electoral roll is usually seen as a sign of stability and dependability – and helps a finance firm check you are who you say you are.
If you’ve recently left home or university, or changed address, you may have dropped off. Apply any time on the Government website; you’ll need your National Insurance number and local authority name to register.

Avoid ATMs with your credit card
It’s late, you need to get home but have no cash – so you use your credit card at a hole in the wall. Ouch. This can be costly as there’s often a fee plus high interest (which is usually charged even if you repay in full.) Many lenders consider these types of withdrawals – especially if made regularly - as evidence of a poor financial habit.

In a flat share or new relationship? It could pay to keep your finances separate
Recently out of uni and privately renting a shared flat or house? Your flatmates’ credit history could impact yours. If you’re all named on the property’s gas or broadband bills, or have a joint bank account to pay the rent, it's likely there’s a financial link on your credit record.

This means when you alone apply separately for credit, lenders can look at a linked person’s record too – and if it’s not healthy, it could lead to you being rejected. The same principle applies for a couple who have a joint mortgage, loan or bank account.

So if you move out from your house or flatshare (or split up from your partner), one issue to resolve is to make sure your finances are no longer linked. You could consider closing down the joint account (or transferring cash to a single account) and contacting the credit reference agencies to ask for a notice of disassociation.

Poor score? A credit ‘builder’ card can nurse you back to health
If you miss repayments on your credit card, it can typically put a hefty dent in your credit score.

It could also create a vicious circle as a bad credit history then makes access to an affordable credit card even harder in the future. In the worst cases, you can end up burdened with too much debt. If you’re finding it hard to pay the bills and stay afloat financially, we’ve info and suggestions to help.
In such circumstances, a credit ‘rebuild’ card could help a struggling borrower better look after their finances.

This type of card typically carries higher interest rates but as long as repayments are made in full every month, interest won’t be charged. The practice of buying a small number of items on the card – worth up to £50 each month, say – can help towards improving a score with the credit agencies, as it shows a borrower can look after their spending.
 

Prone to putting off financial decisions? Our tips could help you get a move on…

How to do away with delays

‘Some people don’t get off the beach until the water hits their behind.’
So said the Italian grandmother of Joseph Ferrari, professor of psychology at DePaul University, Chicago and author of 'Still Procrastinating? The No-Regret Guide To Getting it Done.'

The professor was recalling his relative’s neat description of how some people leave it until it’s almost too late before they take action – a feeling familiar to many who procrastinate, or put off taking action until later.
“Everybody procrastinates, but not everybody is a procrastinator," he adds, highlighting how it can affect people very differently.

If you’re prone to postponing, a lack of action on your personal finances can have drastic consequences – and leave you out of pocket. In particular, if you’re putting off a talk with us over worries about your finances (or are very anxious about opening bank statements or bills and take weeks to do it) we understand it can be a very difficult subject and are here to help.

Here are three of the most common key financial procrastinations and how to beat them…

1 - ‘Buy a flat or car? I’ll never be able to save the £1000s needed so there’s no point even starting’
When the sums of money you need seem so enormous, it can feel like an impossible task to even bother to begin. The sheer scale of what’s in front of you can put you off from even setting up a regular savings account to get started.

One way to tackle this could be to take apart the financial target, and turn it into bite-size chunks. Breaking the whole process into small steps can make it more tangible and much easier to achieve.

Action: A first step would be to pick a suitable savings account and the next to put in a small £100 deposit, say. This wouldn’t have to be at the same time, though. A week could be set aside for the first task, and then another for actually putting the money in.

A next step would be to work out how much could be afforded for transfer into a savings account the day after payday, and a direct debit set up so it happens automatically. Other savings may then be able to be made from cutting back and budgeting in a bid to free up cash to put aside. Slowly, but surely, the target sum should then draw near.

2 - ‘I’d like to start to plan for my financial future but there are just too many products to know which are the right ones’
Too much choice can put off even the most committed customers; a well-known jam experiment in 2000 found that if you give consumers too many products to choose from, they simply give up. The same applies for financial products too: whether it’s searching for the right investment fund, mortgage, savings account, pension, insurance policy, ISA, Help-to-Buy…

The answer is to take enough time to research each option to whittle away what’s unnecessary and work out what’s right for you. But of course, if you procrastinate, you may never get round to it so a trick here is to use a psychological ‘reward’ system – a small treat for a tough task completed.
It’s a well-known psychological method but, in a nutshell, you’re bribing yourself to be more active.

Action: If you’re planning to buy a car, for example, spend an hour comparing the different ways you can do it such as taking out a loan, lease deal or personal contract plan. Then reward yourself with a small treat – anything from an episode of your latest TV binge, say, or a takeout delivered to your door or new jeans ordered online.

Next decide which method works out cheapest (or most manageable) for you and apply – and another reward will be due. However, when you actually get your hands on the car, your new wheels should be reward enough! More importantly, as well as giving you a reward to work for, this behaviour will help reinforce the habit of taking small steps to achieve bigger aims.

3 - ‘Those security updates will take ages to download - I’ll fix my smartphone/laptop/social media settings later’
Many devices now use software such as an operating system (OS), web browser or anti-virus protection that updates itself. But some people still use old, outdated systems no longer supported by their makers and are vulnerable to attack from fraudsters who target your bank accounts.

"Many people don’t update software simply because it’s time-consuming," says Anas Baig, cybersecurity consultant at PureVPN. Similarly, many social media users don’t bother with security settings to make their personal info secure on websites. This allows companies and strangers to harvest data galore which – in the worst cases – can be used to defraud you.

Action: Never ignore software updates, check your social media settings for privacy and – for extra safety - create fiendishly tough new passwords.