So you may have a negative entry on your report. A default or a CCJ perhaps. There are two things to know about the effect that this will have on your financial future.

1. You may be able to have it removed. You can have it removed if it is incorrect and the law defines incorrect as that which you ‘reasonably believe’ is inaccurate or incomplete, information that can’t be verified or information that is obsolete. Consider your entry, does it come under any of those headings? If so, get it removed. If you can’t get it removed, you may be able to put a short explanation on your record, explaining the circumstances. Be careful with this one as it can be a double edged sword.
2. If you have one negative entry, you will still get credit if you have several positive entries and they are more up to date. Lenders are so desperate to lend (because, if they don’t, they don’t make money) that they will assume one old negative entry is out of date, a dispute, or otherwise not to be trusted; if, and only if, the rest of your credit report is exemplary. So if you can’t get the old entry removed within the six years that it has to remain, even if cleared, then work on your exemplary current credit record.

How can you build up an exemplary record? Borrow and pay back. Borrow and pay back.

My old nan was actually refused a Damart catalogue because she had always paid cash for things, never owing anything to anyone. So she had never built up a credit record!

Pay back more than the minimum each time, but never pay it off completely, move the same money around the cards even, but beware of applying for too many cards at once. Any more than two a month the alarm bells start ringing. Try and keep within 60^% of your limit.

The reason you need access to credit while you are building up your financial intelligence is not so that you can go shopping, but to have access to funds for the time when you see that great opportunity.

If you can have one card or loan account that you only use to invest with, then the income from that investment pays off the debt for you, that’s good or clever debt rather than stupid debt.

Mary Hunt, Robert Kiyosaki and Russ Whitney all go into this idea in a lot more detail, and give you step by step instructions on how to manage it carefully.

My two clever friends recently went to Spain to buy two houses. One to live in, one to rent out, the second to pay the mortgages on both. They had carefully built up their credit limits so that they would be able to put a deposit down on their cards if they found a bargain. They did, but the estate agency wasn’t able to process their deposit because they had limits on how much they could accept on cards. Alan’s credit limit was stratospheric! They still got their houses, they just had to send a cheque for the balance when they got home. So the money stayed in their bank account earning interest for another two or three weeks.

DON’T DESPAIR! Don’t despair if you have a terrible credit record or even if you are facing bankruptcy.

It really isn’t the end of the world, as I found out when my credit record was ruined after I went into debt (and then couldn’t manage that debt temporarily) when I couldn’t sell my hotel The Acacia for a year after planning was refused, to turn it back into two houses (which I had buyers for!)

You can get a basic bank account which have cash point cards and often come with a debit card facility, so you can still buy things in shops. These accounts allow direct debits or standing orders so you can still pay your bills.

Nowadays you can get “pay as you go” credit cards where you can top them up with cash online, this enables you to travel and book into hotels.

If you have one of these cards, they have a small monthly fee, and if you enter into an agreement with the company for them to lend you the whole fee for a year, then pay it monthly (as you would be anyway) it counts as a credit agreement and it even starts to repair your credit rating.

Keeping your phone on a contract helps with that too, as does making sure you are listed on the electoral roll every time you move – go to the council and make sure you are listed fast.

ACTION STEP

Build up your ‘Bargain Access Fund’

Check your credit record carefully and address any negative entries.

If you are disciplined enough, start moving your credit balances around so that one card is always being paid off in full. See how long it takes for them to start raising your credit limit.

In the pre-credit crunch days, most of the time they will do it without even telling you. The trick is not to spend it on consumer items, but regard it as funds for investment opportunities – bargains!

This extract was taken from the “Debt-Busting Chapter” of
Nicola’s book “The Money Gym : Wealth Building Workout”