10 Ways to Improve Your Credit Score

Having a good credit score means you’re more likely to get accepted for car finance at the best rates. Credit score will significantly influence your ability to get a credit card, a mortgage, loans and much more. That’s why building it is so important.

If your score is looking a little low, here are 10 ways to improve it. 

 

Calculate Your Credit Score

A credit score is a number that reflects your reliability when it comes to repaying money. It’s based on your payment history, length of credit history, level of debt, any new credit, and number of accounts owned. It will be a number between 0 and 999.

 

Bad credit 0 – 720

Fair credit 721 – 880

Good credit 881 -960

Excellent 961+

 

To check your credit score and keep track of it, you can visit Experian or ClearScore. These are two of the most popular and accurate credit score websites.  

 

Pay on Time

Make sure you pay your bills on time each month as it won’t help your credit score if you miss a payment. Keeping on top of payments will show lenders that you are reliable when it comes to paying back. For any monthly outgoings, for example, if you have car finance or a phone contract, you’ll be able to set up a direct debit payment, which allows the money to be automatically taken out of your account on a set day each month. 

Keeping on top of your finances will improve your credit score, while any missed payments will stay on your credit report for up to six years.

 

Consider Getting a Credit Builder Card

A credit builder card will help those people who have been refused finance or those with no credit history build their credit ratings. 

Credit card builders have a low credit limit and a high Annual Percentage Rate (APR) and it’s a good idea to stay under 25% of your agreed credit limit. For example, if you can borrow £1500 on your card, try not to use more than £375 at once. Paying off any charges on your card in full and on time will reduce the risk of paying a high APR. If you have any overdue balance, the APR will be applied to this. The low credit limit and the high APR allows lenders to reduce the risk of money loss if you can’t pay them back. 

As a result of paying on time and staying within your credit limit, you should notice your credit score increase, as well as show your reliability to lenders.

Here are a few tips to help manage your card:

  • Pay credit cards off in full every month

  • Avoid making late payments 

  • Set up a direct debit for recurring payments 

  • Get alerts to remind you about the payment before the actual payment goes through

 

Register to Vote

You may be thinking, why does registering to vote have anything to do with credit? When registering to vote, you provide your address and personal details, allowing lenders to confirm who you are, ensuring all the information is accurate and avoiding fraud and identity theft. 

When you go to a bank or apply to borrow money from a lender the more information they have, the more confident they will feel lending you money. 

To check you are registered to vote click here.

 

Don’t Move Too Often

Being in one place for an extended period shows stability and lenders like this! 

If your address has changed because you have moved house this could lead to missed bills due to the possibility of them being sent to the wrong property. Due to this incorrect address, mistakes may be made on your credit report. To prevent a low credit score because of the change of address, ensure you provide your new address to your bank and other credit providers you’re registered with.  

Everyone knows that buying a house comes with the excitement of furnishing it: Buying sofas, having a new kitchen installed, hiring a van, and all the large expenses that come with moving. These extra expenses are going to affect your credit score, so maybe think twice about that expensive sofa you had your eye on. 

 

Limit Finance Applications

Less is more! When applying for finance and borrowing money you want to apply for only a couple at a time. Be sure to check you meet the requirements for all applications in order to be approved. Check the terms of the agreement and make sure that it is right for you. You want to reduce the possibility of your application getting declined. 

There are two different types of enquiries, soft and hard. Soft enquiries don’t involve a formal credit application; however, your credit report will still be looked at by either an existing creditor or a company that wants to make you a firm offer. Soft enquiries do not affect your credit score.

On the other hand, hard enquiries are when you formally apply for some form of credit like a mortgage, loan, or car finance. Hard enquiries can stay on your credit report for up to two years, having a small impact on your credit score.

Timing is also a valuable player when wanting to improve your credit score. If you apply for finance around six months before making a large purchase that requires a loan, for example, a car, you’ll find that it will knock some points off your score. 

 

Borrow Only What You Can Afford

It’s important to borrow only what you can afford to reduce the risk of missing payments and getting in debt. If you’re having issues with payments, please contact your lender. The sooner you take action, the better.

Not being able to repay monthly payments is called defaulting and it can lead to severe consequences. A few things could happen to you, the first is the debt may be passed onto a collection agency; next, you could be taken to court; and lastly, your assets may get repossessed. If you have a loan secured with a car and you cannot pay the amount due each month, these assets will be removed from your possession to cover the remaining cost. 

Defaulting can have a dramatic effect on your credit score. You will receive a negative mark on your credit report which will affect any other future finance applications, as lenders will see you as a very high risk subject. 

Who can help you? 

Citizens Advice 

Debt Advice Foundation

National Debt Line

 

Pay Off Your Debts

If you’re paying more for what you are borrowing than getting into your savings, you will end up in debt. If this is the case, it’s sensible to pay off any debt that you have so it doesn’t build up on itself. When paying off debt, it’s good to make sure you have an emergency fund and that the debt you’re paying off won’t come with a huge penalty for repaying. 

Paying off your debts can benefit you in so many ways. First off, you’ll be able to reduce the amount of interest paid overtime. If you have high interest credit card debt this is very helpful. Becoming debt free will allow any emotional or mental burden that it has caused to be released. You won’t have that weight on your shoulders, and you’ll be able to focus on saving for your financial goals. 

 

Close Any Unnecessary Accounts

You may think that having several accounts will increase your credit score; however, this isn’t always the case. 

Having several credit card accounts open is quite common. Some credit card accounts have a slight chance of increasing your credit score, but this won’t look good in a lender’s eyes if you don’t use them often enough. The less you use your credit cards , the less credit history you’ll have; therefore, lenders will see you as less of a suitable candidate. 

To reduce the risk of having a low credit score, depending on the number of credit cards you have, you should cancel a few of them. What is seen as the best amount is around 2 or 3. Once you have cancelled the unused credit cards you’ll be able to spread costs carefully over the remaining accounts. Over time this will help to improve your credit score. 

 

Monitor Your Credit File 

Your credit file, also known as a credit report, is a document that consists of your current and past credit history. Being aware of what your credit file contains is important because this file tells lenders whether you have good credit, or you are a risk to them. 

When applying for finance lenders such as banks or finance companies will go through your file. This will then help them make the decision on whether they can lend you the money or not. The benefit of you monitoring your credit file is that you’ll be able to see what is accurate and identify anything that could improve your report. 

Keeping track of your credit file will bring any inaccuracies and incomplete information to your attention. It’s important to sort any outstanding errors as they could take a hit on your credit score and possibly misinform lenders. 

The most common errors that occur on credit files are:

  • Identity errors (wrong name, phone number, address)

  • Incorrect reporting of account status (closed account that’s reported open, incorrect dates of payments, same debt listed more than once)

  • Data management errors (Accounts that appear multiple times with different creditors listed)

  • Balance errors (Incorrect current balance, incorrect credit limit)

If you find any of these on your credit report, contact the company that sent you the report and the company that provided the information. They will then rectify any incorrect information. 

 

Building your credit score is not an instant process, it will take time. Be patient and follow these 10 ways to improve your credit score and be ahead of the game. 


 

Written by Lois | 10 min read
09 Jun 2022

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