How to turn a 'credit detox' into long-term healthy habits
By Benjamin Salisbury
You likely know that your credit needs to be in good shape before you apply for a credit card, and that it takes a few months to make noticeable improvements. You may carefully polish your score in the months leading up to your application so that by the time you're ready to apply, it shines. However, your good habits shouldn't end once your credit card or loan is in hand, nor should they be an occasional practice.
A February 2016 study by AA Financial Services shows that 60% of people go on a "credit detox" before applying for a financial product by reducing their debts and cutting out risky behaviour to improve their chances of acceptance. Nearly a quarter of those surveyed said they didn't think their application would be approved without the detox. Millennials, those aged 18-34, are the most likely to go on a credit detox, with 78% saying they would do so.
A good credit score is essential to getting the best deal, so it's easy to see why so many people do this. "A poor score can make the difference between getting a loan or not, or paying a higher interest rate," Michael Johnson, director of AA Financial Services, said in an emailed response to questions.
However, the research found that although "detoxers"
clean up their
finances in the six months leading up to application, good intentions soon wane -- 45% return to bad financial habits once they've been approved.
"Similar to a crash diet, once the desired detox effect has been fulfilled people go back to their old habits making the whole exercise ineffective in the long-term," Jacqueline Dewey, managing director of Noddle, the trading name of credit reference agency CallCredit, said in an emailed response to questions. "The three top habits people return to after a credit detox are frivolous spending, ignoring bank statements and not checking their credit score."
a credit detox into healthy, long-term habits
A "crash diet" of changed financial behaviour is not sustainable for many people. Like a dieter whose weight yo-yos up and down, a consumer who goes on an intensive effort to cut spending and repay debts can fail under the weight of trying to do too much too soon.
However, you can incorporate elements of your detox into your everyday life to pave a path for a healthier financial future. You may start taking your own lunch to work, cycling or walking instead of using petrol or paying for transportation, avoiding impulse buys, downloading credit card and current account apps to keep an eye on spending, and looking around for better deals on insurance, phone and utility bills. You may also become adamant about paying down debt and using your credit card wisely, such as only charging what you can pay back right away, or keeping balances low.
"It can be surprising how much of a difference the smallest changes to spending can make," Johnson said. "It all adds up."
Going on a credit detox stems from a desire to improve your credit score, Dewey said, so once you have started the positive steps, the results can -- and should -- encourage you to continue.
"If you find, for instance, that you haven't missed your takeaway coffee and you don't mind taking your own lunch to work, then you might as well keep it up," Johnson said.
If you ingrain these habits in a natural and manageable way, you can avoid having to detox the next time you're ready to apply for a credit card or loan, because your credit will already be worthy.
"Hopefully, being more in control of your money will leave you feeling less stressed and more inclined to continue good habits," Johnson said.See related: 4 wrong ways to pay credit card debt, 7 small mistakes that can break your score
Updated: 26 April 2017
- Avoiding credit-builder card pitfalls – You may have heard advice to take out a "credit-building card" if you have a low credit score. However, if you don't spend and pay responsibly, such cards can further ruin your score ...
- Rebuild your score with a credit-building card – A poor credit record can harm your chances of getting financial products in the future. Fortunately, you can rebuild your score. In addition to good payment behaviour, you can apply for a credit builder card to gradually repair your score ...
- What can you expect from a debt advice service? – If you're struggling with debt, you have lots of options, including debt counselling. Debt advisers can help you assess your situation, work with creditors and form plans for the long and short term to get you on track ...