Smart Money Management in a Digital World: A Guide for Those with Bad Credit

It is no secret that we live in a fully digital age. We live our lives surrounded by technology and often have a sense of unease when technology is not to hand.

Have you ever put your phone down and spent 10 minutes in the garden? Do you feel like something is missing in those moments? The truth is humans have now become conditioned to rely on technology and the connectivity it affords.

This connectivity extends to all aspects of our lives including money management, so let’s explore money management in a digital world and specifically credit scores.

The Financial World Connected

Over the last decade, banks and financial institutions have taken strides towards creating an all-encompassing financial system. The reasons for this step towards full integration of financial services include:

• The ability to share data seamlessly and reduce risks for financial institutions,
• The ability to match products to customers with smart credit scoring,
• The ability to track creditworthiness more accurately over time.

Overall, this holistic approach is designed to give financial institutions a better understanding of their customers, and for customers it allows a broader range of products at competitive rates.

How Banks Are Utilising Digital Credit Scores

Historically, a financial institution would need to contact a credit reference agency at point of sale for a product or service. Commonly these are known as hard credit checks and soft credit checks.

In today’s market, customers can consent to allow financial institutions to actively track their credit scores. Most major banking apps will now display your credit score and any products your bank would approve you on.

What Is a Credit Score?

Despite your bank or building society displaying your credit score actively alongside your online banking facilities, they do not compile the scores themselves. Instead, they rely on four credit reference agencies to supply them with your credit score information.

The credit reference agencies collect information from a variety of sources including:

• Electoral roll,
• Existing creditors,
• Financial institutions,
• Utility companies.

This information is then fed into each credit reference agency’s algorithm, and the calculation then returns a credit score.

The credit score reflects your risk to lenders. A good or excellent credit score will equate to low risk and lenders will be more likely to extend borrowing to you at lower interest rates.

A bad or poor credit score will equate to higher risk for lenders and your chances of borrowing money will be reduced. What’s more, bad credit borrowers will often find they receive much higher interest rates if they are able to borrow money.

How Can I Track My Credit Score Digitally?

There are multiple ways to track your credit score digitally now. All the credit reference agencies provide their own apps to directly track your credit score and there are other third party companies that allow you to track your scores across multiple agencies.

You can also use online banking apps in most cases to track your credit score. You should be aware, however, that online banking facilities tend to take your credit score from one credit reference agency.

In rare cases, a bank or financial institution will use more than one credit reference agency to provide your credit score but because this costs them more money they shy away from this practice.

What Is a Bad Credit Score?

Bad credit scores are normally caused by specific factors in your credit history such as:

• Missed payments,
• Defaults on debts,
• Bankruptcy,
• County Court Judgements (CCJs),
• Failure to register on the Electoral Roll.

Each factor has a different impact on your credit score with missed payments having a minor negative impact and the likes of CCJs and bankruptcy having a significant negative impact.

When considering your financial situation, you should always consider how manageable your debt is. If you find shortfalls or feel you are likely to encounter difficulty in the future, it is best to take action beforehand to mitigate problems.

Where you envision a problem, you should:

• Contact your creditors and find out if they have a solution,
• Create a budget to rebalance your finances in a way you can make monthly payments,
• Contact a debt management charity like StepChange who can do the above for you, free of charge.

What Can I Do to Improve My Credit Score Digitally?

Once you have addressed any of the issues mentioned above, you can also actively track and improve your credit score digitally.

Banking apps normally just provide your headline credit score with no recommendations on how to improve it. Other credit score apps, however, provide bespoke recommendations to enable you to improve your credit score.

A very simple step you can take digitally is to register to vote. This takes no more than half an hour and can have a marked positive impact on your credit score.

Bear in mind any steps you take to improve your credit score will be balanced against any existing negative marks. For example, you may find it difficult to gain meaningful positive traction on your credit score if you have a significant debt outstanding that is damaging your overall score.

Improving your credit score in this respect becomes an exercise in repairing the existing damage done on your credit score by paying down existing debt and taking positive steps recommended by credit reference agencies.

You should also be careful of credit card, store card, and overdraft usage. Regularly using these facilities indicates to a credit reference agency you are living beyond your means, and it is important to pay them down and keep expenditure on these financial products to a minimum.

Bad Credit Solutions in the Palm of Your Hand

If you have a bad credit score you should only borrow money when you need to. It is not a good idea to borrow money because you want to rather than need.

A company has also launched the first bad credit comparison website to allow those with bad credit to access credit at competitive rates.