Rebuilding your Finances

Once you've dealt with your debt problems and have come out the other side, it's important to keep track of your financial commitments.

The first step is determining your revised regular outgoings and identifying a regular budget. Then you need to try and stay within your budget, as much as possible. In many cases, it may also be possible to cut some of your regular costs. For example, there are many sources of information which help you to compare the costs of different providers for bills such as gas, electricity, phone, etc.

If you find it difficult to obtain credit, it may be worthwhile considering what is known as a "pre-paid" credit card. Instead of having a credit limit that you borrow up to, you actually pay money each month which builds up a credit balance. You can then use it as you would an ordinary credit card to purchase goods. The big difference is you've already paid for the purchase in advance and so you're not getting into more debt.

Where you do have surplus money then think carefully about trying to save so that you have something to fall back on if you suffer financial difficulties in the future.

Rebuilding your credit rating

Approximately 70% of customers don't shop around before choosing a credit card. Does it really matter? Well in short the answer is yes.

Lenders generally charge higher rates of interest where they perceive the risk of non-payment to be greater. A borrower with a poor credit rating is likely to be charged more interest than a borrower with an excellent credit rating. This could mean that you pay double the interest rate!

Take a look below at just some of the factors that a lender will consider when assessing an application for credit. Remember though that each lender will have its own policy and will make decisions in line with that.

Address If you've been at the same address for a long time then you will be perceived as being more stable to the lender, rather than somebody who has changed addresses frequently. Similarly, lenders take more comfort if you're on the electoral roll.

Recent credit searches When you apply for credit it leaves a "footprint" on your credit file, so if you've made lots of different applications for credit this will show up and a lender may think that you're desperate for credit.

Several credit accounts If you have a lot of different credit accounts, e.g. several credit cards, bank overdraft, personal loans, mail order accounts, etc, then this may make the lender nervous because you could have a heavy reliance on credit.

Age of your credit accounts If most of your accounts have been opened in a relatively short period of time, say the last 18 months, then the lender may see this as more of a risk than somebody with long established accounts.

Payment history If you've missed payments then this could be an indicator that you're struggling to meet the costs of debt and may be more likely to miss payments in the future.

Enforcement action If your credit record shows that you have a default or CCJ then you'll be seen as a big risk for a lender.

Use of Credit Cards

If you do still have access to credit cards, or will have in the future, try to avoid using them for cash withdrawals or using credit card cheques. Not only do these normally carry a handling fee, but the interest is also higher.

Wherever possible, try to make more than the minimum payment each month, otherwise it could take you a long time to repay the debt.