by Hampus Andersson, Finance Columnist
Published in Finance on 8th May, 2020
Today, I finally mustered the courage to check my credit score. Seldom do people realise how much their credit score impacts upon the quality of their life.
For me my credit score wasn't something which particularly concerned me. Especially since I've achieved some success in my life; certainly I don't depend on credit card borrowing to get by. However, even successful people are affected by their credit scores. In my case I was applying for a business loan - to expand one of my already flourishing business enterprises.
This might sound bizarre, but one of the most negative revelations from my newly discovered set of credit score reports, was that I had little or no credit history.
One might think that a minimal history of borrowing would be a good thing. But lacking a history means that credit scoring companies have little or no history to go by. Typically, this affects a new borrower adversely, by limiting the maximum that they are able to borrow. Think of it this way: why would a lender give money to someone, when they have little or no demonstrated history of repayment?
It turns out that all those years of me buying using my debit card, were damaging my credit history. Instead, I should have bought items on credit and then repaid my credit card balance at the end of each month. This in turn, would have provided the credit score rating agencies with a clear history of responsible borrowing and rapid repayment - the definition of a good borrower.
Much to my amazement, I discovered a number of negative credit events on my credit history. This included a number of late payments, which were more down to my own lack of personal organization, than the amount I actually had available at the time to repay. In other words, I was an idiot.
Nevertheless, these small repayments severely damaged my credit history. It didn't matter that I only owed $5.99, or that I payed back after getting a warning notice in the mail - it was still counted as a failure to repay on time. Therefore my credit score was much lower than I had expected.
The solution was actually quite simple. I got my repayments organized into a monthly budget. This helped me remember to make my repayments on time, despite my laziness.
In my case I was able to verify that the credit events on my credit history were due to expire in only a few months - usually it takes about 7 years - because they were old events.
It was frustrating waiting for the loans I wanted, but in the end I was able to get a much more affordable interest rate on my borrowing. Actually, the simple act of checking my credit score saved my tens of thousands of dollars in future interest payments.
In fact, I've decided that my credit score is so important I want to keep getting a monthly report sent to me. This way if I get any negative events I can dispute them quickly and hopefully get them removed from my credit history.