Despite a good credit rating being one of life’s most important assets many people are confused about what factors improve it and, more worryingly, what damages it.
More than a third of cardholders can’t identify which factors might harm their credit rating and had no idea how to repair it, according to the latest research from Saga.
Your credit rating is vital – not only can it mean the difference between being given credit but it will also affect the interest rate on your borrowing. The worse your rating is, the higher the interest rate you’ll be charged.
Yet just under one in four (24%) of us have in more than five credit agreements – ranging from credit cards to loans and mortgages. The study revealed that while eight out of ten adults understood the dangers of missing credit card payments or exceeding their credit limit, only a third realised that owning numerous cards could stop them getting credit in the future.
Over-50s comfortable with credit
Even if some of their credit cards aren’t being used, they can still have a negative impact on their credit rating – something only one in ten credit card holders realised. However, the over-50s age group proves that with age comes knowledge as only 15% are worried about their credit rating compared to 44% of people under-50 years old.
There are various ways to accumulate credit, the average over-50 year old has just over £10,000 of credit available on store cards, overdrafts, catalogue accounts, credit cards and purchase agreements while those under-50 hold on average £7,000 across a range of different way to borrow.
Credit building cards
Having a poor credit rating can affect almost every aspect of your life as you might not even be able to get a mortgage. Despite this, there are credit cards on the market specifically designed for those with a poor credit rating.
For instance, Capital One has a credit builder Visa card. It has a low credit limit ranging from £200 to £1,500 which means holders are less likely to get into trouble by spending too much.
But it was a hefty rate of 28.9%. The idea with these cards is to try to pay the bill off in full every month and on time, so set up a direct debit to avoid missing a repayment. Do this and your credit score will start to rise.
Roger Ramsden, chief executive of Saga Services says: “Using credit wisely and managing your credit history is key if you want to benefit from the best deals. It is important that people understand the long term implications of having lots of cards.
“Concentrating on shopping around for those that offer a good rate at home and abroad will pay dividends, and closing accounts that you no longer use can help protect your credit rating as well as protect you against fraud.”