While none of us want to have problems with debt, we nevertheless do need to be able to take out loans and to borrow money for certain purchases. For instance all of us apart from the extremely wealthy, will likely need to take out a loan in order to buy a home (this loan is called a mortgage of course) and many of us will need auto loans or even business loans at other points throughout our life. If we are in a lot of debt however, then this can be quite difficult as debt damages what is known as our ‘credit rating’.
Your credit rating, also sometimes known as your credit history, essentially is a number next to your name that indicates to lenders such as banks and auto finance companies, whether you have a history of paying back your loans on time. To a loans company you are of course an investment – the hope being that you will pay back their money with interest and so their wealth will grow as a result of having given you the money. So if they see that your history indicates you don’t pay back loans, then they will be less willing to invest in you by giving you a loan – and you won’t be able to buy a house.
Getting in debt then, essentially means that other companies won’t want to lend you money. The good news though is that there are ways to get your credit rating back in the green and one of the best ways to do this is by getting a credit card.
Now many of you reading this might be weary at the prospect of taking out a credit card when you’re already in debt – and indeed you should only do this if you have a good strength of will and won’t be tempted to use it. No instead what you will do is to use it only very slightly each month to pay for something easy and regular – say your petrol or your phone bill. Then you make absolutely certain to pay this money back off at the end of each month.
The reason this works is that your credit on your card is essentially just a loan and you are in debt until you pay it off. In other words then, by doing this every month you are demonstrated repeatedly your ability to take out a small loan and then pay it back and this says to companies that you can handle your debt and means that your credit rating will improve very rapidly.