4 tips to improve your credit score

19 June 2019

 

Prove where you live

Register on the electoral roll at your current address – you can do this even if you’re in shared accommodation or living at home with your parents.

Build your credit history

Having little or no credit history can make it difficult for companies to assess you, and your credit score may be lower as a result. This is a common problem for young people and people who are new to the country. Luckily, there are some steps you may be able to take to build up your credit history.

Make payments reliably

Paying your accounts on time and in full each month is a good way to show lenders you’re a reliable borrower, and capable of handling credit responsibly. Old, well-managed accounts will usually improve your score – although be sure to check about the potential impact of unused credit cards.

Keep your credit utilisation low

Your credit utilisation is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%. Usually, a lower percentage will be seen positively by companies, and will increase your score as a result. If possible, try and keep your credit utilisation at 25%.

 

Why should I improve my credit score?

When you apply for credit, the company will calculate your credit score to decide whether to lend to you. It is usually based on:

Information from your credit report
Your application details
Data they already hold on you (if you have been their customer before)

 

Each company may have a different way of calculating your credit score, depending on what information they have access to and their lending criteria.

Credit Reference Agencies (CRAs) calculate their own versions of your credit score. You can get an idea of how companies may view you by looking at a free Credit Score company (search online for "free credit score check" and you will be provided with plenty of results). And do not worry, checking your score will not affect it.

 

How can improving my credit score benefit me?

A higher credit score means finance companies see you as a lower risk, so you are more likely to be approved for credit. This is because a high score indicates you have a history of managing your credit sensibly and making repayments on time.

The benefits of improving your score may include:

Lower interest rates

If companies think you are lower risk, they may offer you better interest rates on loans and credit cards, which can make borrowing cheaper.

Higher credit limits

If you improve your score, you should have a better chance of borrowing larger amounts. This could help you achieve goals faster, such as buying a new vehicle or making home improvements.

Access to more offers

Whether it's a leasing, loan, credit card or mortgage you are after, a higher credit score means you will have better chances of approval – so you may be able to choose from a wider range of offers and providers.

 

How long does it take to improve my credit score?

It depends on a number of things, but you should know it will not happen overnight. Information about things like your new bank account or credit card can take up to three months to reach CRAs, so it may take at least this long to see real improvements to your score.

 

5 tips to keep your credit score healthy

Limit credit applications

Applying for credit frequently in a short space of time can make lenders think you are overly reliant on credit and therefore a higher risk. It doesn’t matter what form of credit you apply for, or how much you are asking to borrow – each application will record a hard search on your report which companies can see. So, try to space out any credit applications – a good rule of thumb is no more than one every three months, but remember lenders’ criteria can vary.

Consider closing unused accounts.

Having a large amount of available credit may make lenders think you cannot handle more. So, you may want to close any dormant credit accounts if not needed.

Avoid delinquent and defaulted accounts

Delinquent accounts happen when you are late on your payments, and defaulted accounts are when your relationship with the company has broken down, usually because several missed or delayed payments. Both will harm your credit score.

Only borrow what you can afford

Getting into trouble with debt may lead to things like County Court Judgements (CCJ), an Individual Voluntary Agreements (IVA) or even bankruptcy. These things will stay on your credit report for up to six years and will put a big dent in your credit score.

Keep an eye out for fraudsters

Keeping a close eye on your credit report and looking out for any signs of fraudulent activity could help protect your credit score. If you see a surge in the amount you owe, or any applications you didn not make, you may be a fraud victim. Note that if you do become a victim of fraud, your lenders should fix any damage to your score quickly.

 



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