Intro paragraph…
Credit Score
What is it?
Your credit score ranges from 1-999, depending on where you are looking; and the higher it is, the better. This is because, when you decide to borrow money – be it for a mortgage on a new house, or any other kind of loan, it is likely that the lender will take a look at your credit score to see how responsible you are with borrowing money. A low credit score is a result of missing payments on loans or previous credit agreements such as a phone contract; and could result in you not being accepted for a loan. Whereas, the higher it is, which is a result of keeping up with payments, the less interest you may be expected to pay on new loans, thus saving you money.
How can you improve it?
You may not be looking to get a mortgage anytime soon; but you most likely will be at some point in the future, and it takes time to build up a good credit score. Therefore, here are some tips that you should keep in mind going forwards to ensure that you are putting yourself in the best position:
- A credit score is a record of your ability to manage credit; therefore simply having, and correctly managing credit is the best thing you can do to improve your score.
- Just having credit isn’t enough however, you must keep up with your payments. I.e. always paying off credit cards each month in full and never missing any payments for any loans you may have.
- To pay for your loan repayments, you must have a source of income. And if this is not currently the case, here are some tips for improving your score without using credit.
- Join the electoral roll on the gov website https://www.gov.uk/electoral-register.
- Ensuring your details are correct
- Applying for loans or credit cards, especially numerous in a short periods of time, can have a negative impact on your score. Therefore, it is important to check your eligibility for the product you are applying, before you do it.
- Stay far away from ‘Payday loans’ as they imply to lenders that you are, or have been irresponsible in your money management and will negatively effect your score
Debt
Good & bad debt
Credit and debt are synonymous; meaning, if you have a line of credit or mobile phone contract etc. the amount you have left to pay is debt. The word ‘debt’ has negative and scary connotations for someone who is not educated on the topic, and this should not always be the case. Depending on your individual circumstances, and financial goals, different forms of debt can be seen as either good or bad.
For example, as described on the previous page, one of the most effective ways to improve your credit score rating is to illustrate your ability to manage debt effectively. Therefore, this debt could be considered good (If it is managed responsibly and is aiding you in achieving a goal – improving your credit score.).
Good
One of the most effective ways to improve your credit score rating is to illustrate your ability to manage debt effectively. Therefore, If it is managed responsibly, I.e never missing any payments and paying off credit cards in full each month. This could be considered good debt (If it is managed responsibly, and is aiding you in achieving a goal – improving your credit score.)
Bad
If the debt you take on is unnecessary and does not work towards your financial goals, it could be considered bad. Taking out a loan to buy luxuries, or a new car for example. Of which, the underlaying value of the asset may be depreciative and thus, could even lead you to the point where you have paid an amount that is higher than the value of the asset, while you still have money left to pay.
Invest
Why Invest?
But why should you invest? If your aim is to be financially stable in the future, investing your money is paramount. Saving money is a good place to start, however, simply keeping it in the form of cash will put you at risk of losing value and spending power over time, due to the effects inflation. Right now, and for the foreseeable, it is expected inflation will remain very high – The below graph shows what happens . The best way to hedge against this is to invest your money, which essentially means that you are converting your cash into financial assets such as stocks, bonds, shares in Exchange Traded Funds (ETF) or mutual funds, with the potential to increase in value over time.
Further, the earlier you start, the better. ‘Compound interest visualizer’ to see how your money has the potential to grow exponentially over time, due to the effects of compound interest. (Click me)
How to invest
Once you’ve established a stream of EDI, your next step is to seek help from a professional – who’s job is to ensure that your money is looked after, and given the best chance to grow. A good place to start your investment journey, if you have not already done so, is to open an individual savings account (ISA.) In an ISA, you can contribute up to £20,000 each year, with any profits made and money withdrawn being completely tax free, this includes any dividend payments. If you would like to get into contact with one of our many financial advisors across the UK, head to our website and book in your initial consultation, completely free of charge. (Usual disclaimers)
Saving
How to save
In order to save, you need to have a plan in place. It is important to regularly keep track of the flow of your money to see where it may be being wasted and, thus, which areas you need to look at cutting down the unnecessary spending on. A very effective way to do this is to create, and stick to a budget; this can simply be done using pen and paper each month, or you can utilise a digital format.
Here is a free budgeting tool that we have created. Click me (Scan QR code) Once you have found the leak, you can plug it, and begin putting the excess somewhere separate to accumulate and potentially grow exponentially – You can call this earned disposable income (EDI.)
Work to Wealth
If you found the information in this leaflet interesting, and you would like to expand your knowledge Further, ‘Work to Wealth,’ is the next step on your journey of financial literacy and wealth creation.
This book will change the way you think about work, lifestyle and money. Work to Wealth provides practical guidance on how to evaluate your work situation, avoid the ‘working trap’ and invest your income to generate wealth.
For more information on Work to Wealth click here. Or purchase your very own copy on Amazon here.