Borrowing sensibly

Most of us need to borrow money at some point in our lives, whether to tide us over until payday or to buy a home. However, it is important to borrow sensibly and not to over-extend yourself or it may affect your credit rating.

Your credit rating
Credit scoring or rating is how banks, credit card companies and other lenders make decisions on whether or not to lend you money. A good credit score can get you better rates when you apply for a Loans or a mortgage. Lenders then use this to determine whether they’re going to lend to you and on what terms.

How to check your credit rating
Different lenders score you in different ways so if one lender refuses you it doesn’t mean everyone will.

1. Get hold of your credit file from any of the three main credit reference agencies so you can correct any mistakes - for instance, if you have ever lost your wallet or had it stolen, someone may have attempted to take out credit in your name.

2. A credit report only costs a few pounds but is well worth it. When companies reply, they’ll explain what the information means and tell you how to get it changed if you can show them that it’s wrong.

3. Remember that being financially linked with someone with bad credit can affect your rating!

Apply to Experian, Equifax or Call Credit for your credit report.

Getting the right borrowing
It is important that you choose the right borrowing. Borrowing needs to be repaid and different kinds of loans are usually repaid differently. You should only take it on if you can comfortably manage the repayments.

Short-term borrowing is more flexible, but obviously you’ll pay higher interest for this kind of flexibility. Overdrafts should be used for short-term borrowing. Long-term borrowing, however, tends to be cheaper but less flexible. Whichever you choose make sure you pay it off as quickly as you can.