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How to improve your credit score
Your credit score is made up of information held about you and your monetary behaviour by credit reference agencies.
Banks and lenders use this information to decide whether to lend you money based on risks and benefits they’re likely to incur. The easy way to think of it is that banks/lenders are trying to predict your financial future based on your financial past.
Many people don’t know what their credit score is and they may not understand how it affects their financial future. However, for those aware they have a poor credit score, we have put together a list of ways you can improve it. All these ideas are easy to carry out, though some take more time to improve your credit score than others.
- Keep any debts at low levels and repay on time every month
If you do have any existing debts, try to keep them as low as you can. By doing this it creates a smaller risk factor as you only owe smaller amounts of money. Also, make sure you repay monthly payments on time every month. The easiest way to do this is to set up a direct debit for paying back money. Late payments, even just one or two, can have an impact on your credit score. It will also lower the bank’s feelings of trust in you.
- Make sure you pay off your debts, don’t keep moving it around
Moving your debt from one credit card to one that offers a lower interest rate can be a good idea. However, if you do this multiple times, banks and lenders may see this as a distraction technique. It suggests to them that you are stalling paying off your debts. By avoiding these responsibilities, the bank will see you as a less reputable applicant.
- Changing your address often may impact on how the bank feels about you. It can be the same with jobs too.
Banks see an ever-changing address as a very bad thing. Spending 6 months here and 3 months there, shows instability in your life and banks do not like instability. However, it may not be your fault your address changes often especially if you are a student or renter. Although, it is definitely worth staying in one place for as long as you possibly can.
Again, changing jobs a lot shows instability in your income, as a fixed salary is not received monthly. Again it may not be your fault, as you may have gone through redundancy recently. But the longer you stay in a job and the less time between jobs, the better for all.
- Share a mortgage, bank account, loan or energy bill with your partner? If they have a bad credit history, it is likely to affect yours.
Sharing your mortgage, bank account or energy bill with your partner makes a lot of sense, particularly if you live together. However, if your partner is or has experienced money troubles from bad debts, CCJ’s or arrears, it may affect your ability to successfully apply for credit.
In many cases, it won’t make a difference to you at all. However, it is worth being open and honest about your finances and past or present money troubles with your partner. This can help you both start to take steps to improve your separate and overall credit ratings.
- If you don’t use your credit card, close it down!
Opening up a credit card to improve your credit score be a good idea in some situations. But you must make sure you pay it off on time every month. However, if you have a paid off credit card you no longer use, then make sure you close the account down. There is no point for you to have the account any longer. Hopefully your previous paying off of the account will have improved your credit score for future credit applications.
- Don’t open lots of credit cards just to improve your credit score.
As I mentioned above, many advice websites and companies, recommend opening up a credit card to improve your credit score. This works very well for people who have little financial information stored about them, as long as you pay it off on time every month. However, opening up a lot of credit cards, especially all at once, will not improve your credit score. If anything it will look quite odd to banks and lenders and they may find this behaviour somewhat untrustworthy.
- Make sure details are consistent on every account, profile and application
Your personal details such as name, address, phone number, marital status and your current employer should be kept up to date at all times. Bank accounts and service providers you have a contract with should have your most up to date information. This information should also be on all credit applications and it should stay the same on every application. Any changes may hint at mistrust. Make sure you inform the relevant parties when your personal details change.
- Avoid payday loans (especially if you are applying for a mortgage) and look into credit rebuild cards
Payday loans have proved useful for many people over the last few years, whatever your opinion on them may be. However, if you are looking for approval on a mortgage, taking out a payday loan is a bad idea. The common feeling from banks and lenders is that it is a very risky loan and is something they will look negatively on.
Credit rebuild cards are a much safer option for people with very poor credit scores. If you have a poor credit history, you need to build up a good recent history, though getting credit is obviously difficult. Taking out a card with a very high APR rate is the best option as you are much more likely to be accepted. As long as you repay the card in full every month and never withdraw cash, even if you only spend £50-100 on the card, you should see a significant improvement in your credit score over 6-12 months.
- Unfair defaults or errors? Dispute them and make sure you seek impartial financial advice
When you check your credit history, you may come across credit errors or unfair defaults that have significantly affected your score. If this is the case, you are well within your rights to dispute them in the hopes of removing them and your credit score improving.
You can do this on your own, by getting in touch with the company concerned and following their complaints procedure. However, for bigger sums of money and more serious defaults, it may be worth seeking impartial financial advice, most of which is free in the UK. By doing this, you will become aware of your rights, learn how to go about disputing the defaults and you may also choose to employ a solicitor or financial advisor on the back of the preliminary advice obtained.
- Get your name on the electoral roll!
The easiest and simplest thing you can do is put your name on the electoral register. It not only means you can vote and practice your democratic right but it also improves your credit rating. How does it do that? By registering with the Government for the electoral roll, you are providing an up to date and formal confirmation of your details and circumstances. This is information the bank can obtain and they will use it to cross reference other information about you. This feeds into their overall picture of you, your details and your financial history.
There are many ways you can improve your credit score and we have highlighted just a few above. If you have a bad credit score currently, it doesn’t have to be the end of the world for you and your chances of obtaining credit. A few short term and long term changes to your behaviour really can make all the difference to your financial future!