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Whatever your financial ambitions, there is one golden rule that applies to all New Year resolutions – be realistic. You’re doomed to fail if you set your sights impossibly high. Start by brainstorming what you really can achieve, then fix your goals. These tips should help you to get going.
Ambition 1: Know where the money goes
This is relatively simply, although it does take some work. Go through your bills and statements and list every penny you spend – try separating payments into weekly spending, such as food; monthly outgoings, such as credit card repayments; and quarterly or annual payments, such as car tax.
Next, see how much you’ve borrowed and how well you’re coping by getting to know your credit report. This lists your cards, loans, mortgage and other credit accounts, such as mobile phone and catalogue accounts. It also shows your repayment record and recent applications for credit. Lenders check it when they decide whether to make you an offer and what terms to set, so it’s important that it’s up to date and accurately reflects your circumstances.
- Use our budgeting calculator to check
Ambition 2: Live within your budget
Now you know where your money is going, you need to work out how to manage it better. Going out is likely to be top of the hit list but don’t forget the smaller things, such as coffees, snacks and magazines – these can quickly add up.
If you really need an item, see if there’s a cheaper alternative, such as an own-brand rather than a premium product and visit price comparison sites to bring down the cost of utility bills and insurance.
But remember not to overdo the austerity – you need to leave yourself a bit of cash for occasional treats, otherwise you’ll find the going too tough and give in to the urge to splurge.
Ambition 3: Tackle your debts
If your debts are becoming a problem, don’t stick your head in the sand and the red bills in the bin. Instead, work out which are your priority debts – for example your rent, mortgage or council tax- as the consequences of not paying these are severe. Non-priority debts such as unsecured credit agreements come next, after day-to-day living costs.
Of course, taking a look at expensive debts can be useful, especially if there’s a chance you can switch some of this to cheaper borrowing. You may be better off repaying debts than maintaining savings accounts with low interest rates.
The information in your credit report allows you to identify redundant accounts that can be shut down and can help you to decide whether you’d be better off rolling several accounts up into a single, cheaper loan. You should also ask your bank about setting up an authorised overdraft, which is cheaper than going into the red without warning them.
If you’re tempted to skip a few repayments to give yourself some breathing space, talk to your lenders instead. Missed, late or partial payments stay on your credit report for at least three years and suggest you’re a bad risk. You’re better trying to reschedule what you owe, so repayments are affordable.
Ambition 4: Get a mortgage
Mortgages are getting a little easier to come by but you will almost certainly need a deposit of at least five per cent of the value of property – more if you want a better deal. So if you haven’t got a savings account, now is the time to open one – and remember that you can often get a higher rate of interest if you pay into it by monthly direct debit.
Groom yourself for the mortgage market by challenging any errors or misunderstandings on your credit report. Look for accounts you’ve closed that are still marked as open, unfamiliar transactions and small details, such as differences in the way your address is reported by different lenders.
Similarly, if you had a legitimate reason for letting things slide once or twice – you may have missed a couple of repayment because you were temporarily unable to work, for example – see if you can add a note of explanation to your credit report. Be ready to provide evidence to a new lender to support your claims.
- Compare the best mortgage deals
Ambition 5: Find the ideal credit card
The first rule of bargain-hunting is to shop around. Keep an eye on the papers for the latest offers and use price comparison sites to find one that matches your needs and circumstances – but make sure you only apply when you’ve found the deal you want.
A string of random applications will generate searches of your credit report that leave footprints that may make lenders think you are desperate for money or even suspect a fraud. If you want to find out what kind of offer you might expect, and the rate you’ll pay depends on your score -ask the lender for a quotation search.
To qualify for the best deals, such as 0% balance transfers or a repayment holiday on new spending, you’ll need an excellent credit history, so register to vote immediately. Lenders use the electoral roll to confirm your address – you may lose valuable points from your credit score if you don’t appear. You should also make sure you’ve closed down any joint accounts with ex-partners, as these create a financial link that can mean you’re marked down if they have money problems. Check your report and ask for any outdated financial links to be removed.
Ambition 6: Understand your credit rating
Your credit rating, also known as your credit score, is calculated every time you make an application. It is designed to reflect the risk that you won’t repay what you owe and be a responsible borrower. Generally, the higher your score, the more likely you are to get a good deal.
The lender takes data from your application and your credit report, allocates a value to each item using its own experience and industry data. The total is your credit rating. You don’t have a single credit score, as every lender uses a different formula and some even apply different calculations to different products, so you could get two different scores if you applied for a car loan and a credit card on the same day.
And, of course, it changes when your circumstances change. For example, paying off a debt could give your score a boost, while opening several new accounts could depress it.
To view your personal credit information that lenders are currently basing their credit decisions on, apply now for a free online credit report. Click here for a free 30-day trial and a free copy of your Experian credit report
