Few people realise the full importance of their credit score. You might be in for a nasty shock when you go to purchase something and are refused because the credit score you have been awarded is insufficient to cover any risk to the seller.
A lot of people think that if they’ve got a poor credit score, it relates to defaulting on some type of repayment; say a loan or a hire purchase contract. However, this is not necessarily the case. You could be like many people, who do their best to avoid ever taking out a credit card or loan. You might refuse to buy anything on a credit card, and instead always pay cash instead, even if it means saving for weeks or months to amass the necessary sum. Unfortunately, this can work against you.
The problem of having no credit history
If you have so far avoided taking out any credit, but in your own mind you know you are a good credit risk, you could still be refused credit when you genuinely need it most. It’s because you don’t have any credit history. This is of course what the main credit reference agencies, people like Experian, Equifax and Call-Credit, use to calculate your credit score.
Your credit score is obviously personal, but if you have aspirations of starting up a business, it could become important in the commercial world too. Most businesses are small start-ups, and they are usually funded by the business owners themselves. In order to keep clear records for business financial transactions, many entrepreneurs take a stand-alone credit. While the card is in their names, they only use it for business transactions only.
How a dedicated credit card can help your new business
As well as keeping business finances separate from personal finances, the other useful thing about a credit card is that they offer a credit period, which is usually around 30 days or more from the date of the first transaction on said card.
This means that new business owners can grant themselves some time in order to make sales and get paid, so a dedicated credit card could become an important factor in terms of helping to manage cash flow.
Getting that dedicated credit card off the ground will, of course, be difficult if you have little or no credit history. But there is one innovative solution that is well worth considering.
Utilising your rent to generate a good credit score
Most young people today live in rented accommodation. The good news is that, thanks to CreditLadder, if you pay your rent regularly, on time, this can be used to build a reliable credit history, in fact it may well be your one and only opportunity of getting that all important first footing on the credit ladder.
The way it works is quite simple. Instead of paying your landlord directly, you pay through a third party. Each time you make a payment, this third party will register that on-time payment with an agency like Experian. They will then pass your payment onto your landlord. In this way, your credit history is being created.
It is an excellent and legitimate way of creating a good credit history without having to rely on credit at all; so you remain true to your principles, and you get the credit score you justly deserve.