Do you want to improve your credit score? So do many others. The good news is that you can do a lot of it on your own. In this post, you will learn how to improve your credit score effectively.
Your credit score has an impact on practically every element of your life, whether you’re applying for a loan or a credit card, purchasing insurance, or even renting an apartment.
Improving your credit score is one of the most important things you can do to prepare yourself for financial success
A credit score is a three-digit number that indicates your creditworthiness. A mathematical formula uses information from your credit report to calculate it.
When considering whether or not to lend you money and at what interest rate, lenders will check your credit score.
While having a good credit score is beneficial, it is not the only criterion used by lenders to determine whether or not to extend credit and at what interest rate.
Other factors considered by lenders include
An excellent credit score is better than a bad one. Yes, but we can deduce from the last point that there is no magic number.
There are people with excellent credit scores who still get rejected because different lenders will search for different things in potential consumers
You might be a good customer for one lender, but not for another.
This is an important piece when discussing how to improve your credit score because the score is based on historical data.
If you have little or no credit history, it can be difficult for companies to score you
While having a bad history will work against you, having no history will not work in your favour either
Also, your credit history cannot be transferred from one country to another, so keep this in mind if you plan to move to another country.
This is why it’s important to keep your oldest credit card accounts
This is the sole purpose of the credit rating system. It ultimately comes down to forecasting future behaviour.
Lenders and many businesses want to make money, and they will use that system to determine if you help them achieve that goal.
If you commit fraud (or someone steals your identity and commits fraud), it will be recorded in your file under the CIFAS section.
In many scenarios when people talk about how to improve their credit score it’s in relation to a credit product like a mortgage
Every credit provider on the market will analyse your credit file to assess whether or not you can borrow from them and at what interest rate.
Typically, information about you is kept on file for six years. Some information may be kept for a longer period of time, for example, if a court orders that a bankruptcy restrictions order be kept for more than six years.
If information is kept for longer than it should be, you can request that it be deleted.
If your house was repossessed or you moved away, owing money
Credit reference agencies are businesses that are permitted to gather and store data about individuals’ borrowing and financial behaviour.
In the United Kingdom, there are four credit reference agencies: Experian, Equifax, Crediva and TransUnion.
They keep your financial history or credit report and use it to figure out your credit score.
Many people believe that their credit reference files contain information about every aspect of their lives, but this is not the case.
The following information is kept by credit reference agencies:
Before we get to tips on how to improve your credit score let’s start with the problem: what is the cause of your poor credit?
While there are other reasons why someone may have a low credit score, the following are the most common:
This is the simplest tip about how to improve your credit score. If you are not on the electoral roll, any lender or provider to whom you apply will consider this a red flag.
This is because it is more difficult for them to validate that you live where you claim to. In just five minutes, you can register to vote online.
What is the simplest approach to improving your credit score? Every month, pay your bills on time. This helps to keep your credit utilisation low and demonstrates to lenders that you’re dependable.
If you’re having trouble keeping up with all of your payments, take a look at your budget and see where you can cut costs. You may be amazed at how much you can get.
Also, read our post on creative ways to save and how to cut down on your grocery and energy bill.
Do you pay your rent on time every time? If this is the case, private renters and social housing tenants can benefit from free credit-building programmes.
It’s important to note that the only way you’ll be able to benefit from this is if you always pay your rent on time, because if you miss a payment, it will be recorded in your file and may be considered unfavourable by lenders if/when you apply for a credit product.
There are three free choices to pick from
Credit utilisation is the percentage of the credit limit that you are using. The closer someone is to “maxing out” a credit line, the more likely they are in a terrible financial situation.
A £190 amount on a card with a £2,000 limit won’t raise many eyebrows, but a £190 balance against a £200 limit definitely will.
It is advisable to keep credit utilisation at 30% or below. For example, if you have a £3000 limit, make sure you don’t use more than £900 every time, resulting in a 30% usage.
If you have many cards, simply sum up all of the balances and limits to calculate your credit utilization.
Many lenders consider this to be evidence of poor financial management. Not only that but will be a lot of interest payment.
Withdrawing cash with a credit card not only costs you money but also has a negative impact on your utilization ratio
The more you use your card, particularly for cash advances, the lower your credit limit appears in relation to how much debt you have outstanding.
This gives the impression that you have a lot of debt, which lowers your credit score.
It’s a good idea to check your credit report at least once a year or many months before you apply for a big loan or credit card. Inaccuracies could keep lenders from approving.
Check your credit report to ensure that everything is in order. Examine every detail because mistakes can lower your score.
If you discover an error, contact the reporting agency immediately and request an investigation.
This includes credit card payments, personal loans, vehicle loans, mortgages, and other financial obligations.
Creating a budget and setting up automatic payments can help make sure that all payments are handled in a simple way.
Be cautious before engaging in a joint financial situation with someone else, such as a mortgage or auto loan.
If they have bad credit, you may be responsible for their missed payments. Similarly, if you have bad credit, you may jeopardise someone else’s credit by getting into a joint agreement with them.
When it comes to money, don’t get into situations where you could be held liable for someone else’s debts, like cosigning for loans or leasing a car, unless you’re willing to take on that risk.
An eligibility checker is a website that shows you how likely you are to get approved for specific credit cards and loans without damaging your credit score.
It accomplishes this through the use of a “soft search” — an inquiry that is not logged on your file and is not available to lenders.
These cards are specifically created for people with bad credit. They often have high fees and interest rates, but they’re good tools because they show that you can manage a credit card well and start building a good payment history.
Apply all the other guidelines with this post, such as making payments and not using more than 30% at a time.
You can also apply for a secured credit card, which needs a cash deposit upfront but builds your payment history month by month. Select a card that reports to all three major CRA.
Obviously, this is easier said than done, but it’s important not to let debt build-up — especially on revolving accounts like credit cards. You might have to make sacrifices in the short term, but those sacrifices will pay off in the long run.
This also impacts your utilisation ratio positively because you bring it lower
Your credit score will be hurt even if you pay your house or car insurance bills on time each month.
Why? Because you are getting into a credit arrangement with the insurance company with the monthly payment schedule
The insurer will conduct a hard search on your credit file to see if you can pay them back. These “hard checks” will remain on your record and be exposed to other lenders, lowering your credit score.
While boosting your credit score might be challenging, it can also be quite rewarding. Many people nowadays find themselves at a disadvantage when it comes to taking out loans or making large purchases.
But that is not the case with you; if you properly follow this guide, you will be able to improve your credit score.
