Hello and welcome to Finder’s financial self-help series where we swap scented candles for sage money tips and advice. Check it out. The dreaded credit score. What is it? Where does it come from? And how can you make it better? Whether you have a low credit score or just want to improve yours a bit, check out these 6 tips to increase your score and open the door to better rates, credit products and general bragging rights.
Credit score: The basics
Your credit score is a numerical rating that’s calculated based on your financial activity and credit history. When you apply for a form of credit, like a credit card, loan or even a phone plan, lenders will look at your credit score to see how trustworthy you are when borrowing money. So having a good credit score is pretty important if you want good interest rates on your credit card or mortgage, or even just call your gran off your own mobile phone. There’s no one definitive “good” credit score, as each credit reference agency uses a slightly different scale as a benchmark. To get your credit score, you’ll need to apply for a credit report via one of these agencies. The biggest ones in the UK are Equifax, Experian and TransUnion. You can also get free access to your credit score through Finder links are in the description below. A poor credit score could be the result of bad credit history, from late or missed payments, going over your credit limit, filing for bankruptcy or having outstanding county court judgments. You can also have a low score just because you haven’t yet built up any credit history. While there’s no overnight fix, here are 6 ways you can improve your credit score.
1. Register on the electoral roll
This is possibly the easiest way to help build your credit rating. Being on the electoral roll gives lenders proof that you are who you say you are when you apply for a form of credit. While it’s not always possible, having a stable address for an extended period of time, whether you’re an owner or renter, also reflects well on your credit file.
2. Always pay your bills on time
Whether it’s your phone, utilities or mortgage repayments, paying your bills in full and on time tells lenders you’re financially responsible. Overdue amounts can become defaults, a term used for when you break your credit agreement, and could leave a black mark on your record.
3. Check your credit file
Make sure you regularly check your credit report for any errors in your personal details or financial history. Even minor mistakes, like having the wrong date of birth, can affect your borrowing power. And, while you’re there, keep an eye out for any fraudulent activity, like someone trying to apply for credit in your name. Report anything suspicious to the credit reference agency.
4. Maintain a good credit utilisation ratio
It sounds complicated but your credit utilisation ratio is simply the amount of credit you use compared to your overall credit limit. For example, if I have a credit limit of £1,000 on my credit card and spend £400 of it, my credit utilisation ratio would be 40%-30% and below is considered a good ratio.
5. Consolidate your debts
If you’re still paying off a loan or credit card, you should prioritise getting these debts down as much as possible or paying them off in full. Ideally, you should pay off most or all of your existing credit before applying for more. And, once you’ve paid off that debt, it can be a good idea to keep those accounts open even if you don’t then use them. This shows that other banks are willing to offer your credit and helps to keep your credit utilization ratio low. If you have multiple debts, consider consolidating them into one lump with a debt consolidation loan or 0% balance transfer card, which shows lenders you’re responsible when it comes to paying off your debts. Receiving any county court judgements for debt, or having any form of bankruptcy or default in your history, will seriously affect your credit score and make it much harder to get a loan or credit product in future.
6. Start building your credit history
Having no credit history is a little better than having a bad credit history, but it could still limit you when it comes to interest rates and how much you can borrow. If you’re eligible, consider opening a credit account, like a low-interest credit card. If you struggle to qualify, try a credit-builder credit card which is like an entry-level card that can act as a stepping stone to a better credit score, better cards and better rates. Just make sure to pay off your balance on time each month, otherwise you may end up negatively affecting your credit rating.
You must be logged in to post a comment.