How can I improve my credit score?
Here are a few simple ways to improve your credit score:
- Check your credit file
- Register on the electoral roll
- Pay bills on time
- Weigh up your total indebtedness & available credit
- Limit credit applications
Read on with Personal Loans Now to find out how to improve your credit score in more detail.
In this article, we take a look at the key methods you can use to improve your credit score. We then examines why your credit score is so vital and explain how a low credit rating can cost you money in a variety of ways.
Ways to Improve your Credit Score
Check your Credit File
You should first check your credit file at all three agencies to make sure that the information they hold on you is accurate and up-to-date. Especially check necessary information like your address. You can ask entries regarding credit products to be amended. This is as long as you can provide proof in the form of credit card statements, receipts or confirmation emails.
If there are extenuating circumstances for late payments (for example, because of ill health or a redundancy), you can add a Notice of Correction. It should be no longer than 200 words.
If you used to share a financial product with someone else (such as a former partner), you could complete a Notice of Disassociation. This is especially important if they have a low credit score. Their score will have an impact on your own through no fault of your own.
Register on the Electoral Roll
Registering to vote can improve your credit score. It shows stability and is also a way for lenders to prove that you live where you say. Thereby, reducing the risk of identity theft and fraudulent credit applications in your name.
Paying Bills on Time & Spending Habits
You should commit to paying all your bills on time – both credit products and domestic bills. If you find that you tend to be disorganised, then you could arrange for payments to be made by direct debit. Alternatively, there are apps which you can set up with alerts and which track your spending.
You should avoid taking out cash advances on your credit card. Not only is this form of borrowing the most costly, but lenders also view it as a sign of poor money management skills.
Weigh up your Total Indebtedness & Available Credit
If you have outstanding balances on some consumer credit products, then it might be a good idea to reduce how much you owe. You can do this simply by paying off some of these debts. This is because in judging the affordability of a loan, lenders don’t only consider your earnings but also your pre-existing financial commitments. Once you have reduced your overall indebtedness, think carefully about how much credit you have and whether you should cancel some of your cards. Instead of just cutting up cards, this should be done officially by notifying the card issuer.
When you already have access to credit (even if it isn’t utilised), this may affect how willing creditors are to lend you more money. They may feel that the access to credit could be tempting and affect your repayment of the money you borrow from them. When deciding which cards and accounts to keep open, the golden rule is to try and keep the ones you’ve had the longest. This is another sign of stability in your borrowing history.
Limiting Credit Applications
If you’re turned down for credit, your natural reaction is to apply somewhere else. However, this can have a disastrous effect on your credit rating. Repeated credit applications in a relatively short timespan are a red light for lenders. It give the impression that you are in desperate financial straits.
To avoid this, you should restrict credit applications to every three months. Or, you can ask whether the lender would be prepared to carry out a ‘soft’ or quotation search. This will not be visible to others (apart from you). Alternatively, you should check the creditor’s lending criteria before applying for a loan. This should be available from their website or in-branch. It could cover both your personal and financial circumstances.
As far as affordability is concerned, many lenders also have tools which allow you to see whether you meet their income requirements. Researching financial products in this way will improve your chances of having the loan approved and keep your credit score intact.
Why is your Credit Score Important?
One of the reasons that your credit score is so crucial is that it allows you access to a range of credit products for example homeowner loans, best personal loans and mortgages etc. Before approving any credit facility, the lender will check with one or more of the leading credit reporting agencies in the UK (Experian, CallCredit or Equifax) to see your previous borrowing history and judge how well you have dealt with credit in the past. This gives them an idea of what kind of borrower you will be. They also find out how much of a risk you represent.
Apart from allowing you easy access to mainstream credit, your credit score will also affect how much you will pay in terms of interest. People with a higher credit rating are charged much less than those with a poor score.
Finally, your credit score doesn’t only affect how much you pay to borrow. It will also affect your access to other services. You might not think of your utilities or your mobile phone contract as borrowing in the same way as a personal loan or credit card. However, until you pay the bills, the provider is offering you this service on credit. As a result of a low score, you might find yourself having to resort to more costly pre-paid cards or meters.
Entries on your credit file go back up to 6 years. Although, borrowers tend to give more weight to your recent credit history. In other words, the past 6-12 months. If you have a poor credit score, you should, therefore, allow this amount of time to elapse before you see a significant difference in your score. The key to want to improve your credit score is patience, perseverance and a track record of wise money management. There is no magic formula. And it certainly does not need the intervention (and additional expense) of a credit repair agency.