How to Improve your Credit Score

A credit score is a tool used by lenders to help determine whether you qualify for a particular credit card, loan, mortgage or service.

People with a higher score are often seen as lower risk, which means lenders are more likely to give them credit.

Keeping track of your credit score is an important part of monitoring your financial health. For example, if you plan on buying a house you most likely will need a mortgage; therefore, your credit score will determine if you are accepted for a mortgage and how much you can get.

There are many ways in which you can improve your credit score, keep reading to find out.

Check your credit report annually or before any major application

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It is important that you regularly check what is on your credit report, and therefore what makes up your credit score. Additionally, it is important that you check your report from different credit agencies e.g. Equifax, Experian and TransUnion.

Credit reference agencies such as those mentioned above, hold huge amounts of data about everyone. Occasionally, mistakes pop up so you need to actively monitor your report to ensure that everything is correct.

If you do notice a mistake on your credit report you can raise a dispute with the reference agency. Explain why you think the information is incorrect and they will investigate and hopefully resolve the issue.

Register to vote or it will be harder to get credit

It is really important that you register to vote, otherwise you may find it difficult to get accepted for credit. Don’t wait for the annual reminder for elections to come around, just do it now at gov.uk, it takes 2 minutes.

Just follow the instructions online, you will be asked a series of questions to identify you, and which local electoral borough you need to register with. You will also need to have your national insurance number to hand.

Why register to vote for credit? Simply, financial institutions such as banks will use the electoral register as a method to verify your identity. Considering it is a legal requirement to register to vote when asked by your council, not appearing on the register is a red flag for financial institutions.

Never miss or be late on any credit repayments

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It sounds obvious but missing any repayments can have a disproportionate impact on your credit rating. Doing this even once or twice could impact you for years as this shows you are a potentially high risk customer. Any missed payments within the last 12 months impact you the most.

The best way to ensure that you pay your bills on time is by direct debit, then you will not miss any payments or be late. While ordinarily I would caution against paying just the minimum repayment amount, this is preferable to missing or defaulting on a debt. A handy way to organize your repayments could be to set up a direct debt for the minimum amount every month and then manually pay more. That way you will never miss a payment.

If you are struggling, while a cliché, get in contact with your lender. In the first instance this is the best option. Changing your payment schedule is a lot better than defaulting, it will still impact your credit rating but not as much as having a County Court Judgment (CCJ) against you.

Don’t apply for credit too often

Every time you apply for a credit product, such as a mortgage, car loan, credit card etc, it will leave a footprint on your credit report for a year.

If you apply too often, this could cause you to be rejected as it makes it look like you are desperate for credit. The best way to manage this is to spread out any applications.

So if you want to get a credit card and are not planning on any other credit products for the next 6 months, go ahead and apply. Alternatively, if you are thinking about applying for a mortgage soon, do this first. You need to priorities your applications.

If you are rejected, check your credit report and don’t reapply straight away. You need to avoid the rejection spiral – this is when you apply to credit and are rejected, so you apply elsewhere but are rejected again due to your recent application.

After a rejection, in the first instance you need to check your credit report with the agency the institution used. You can then check for any mistakes.

Use a credit builder card to build a history and restore past issues

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As your credit score and report is used to predict future credit health, those with poor history do poorly. Similarly, if you do not have a history or using credit, you can be viewed poorly as an institution will not have any information to go off.

A credit builder card is a credit card for those who have poor or no credit history. Typically, the credit limit will be low (usually around £200) and interest rates will be high. Therefore, it is really important to pay off this card in full every month to avoid any interest charges.

These cards can be a great starting point for you to build up your credit score provided it is used responsibly. The best way to go about using one is to spend about £50 a month on the card, after 6 months provided you haven’t had any issues things should start to improve. After a year, it should make a big difference.

If you already have a credit card which you are not using then you don’t need to use a credit builder card. Just treat your existing card as one.

Don’t spend more than 25% of your available credit limit

The reason for this is that when a lender checks your credit history, they will see that you can be trusted to spend only what you need to and not go all the way up to the limit. Lenders want to see a responsible borrower, who is able to use the credit they have been given and pay it back.

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None of the content in this article should be considered financial advice, I am not a financial advisor and you should always do your own research prior to investing. These are my opinions only.

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