8 Ways to improve your credit score

Having an excellent credit score will directly impact the amount of credit you are offered, the interest rate and the range of options you will have. If you haven’t already, check out the previous article detailing the importance of your credit score. Below we run through eight tips on how to improve your credit score. 

Limit credit applications

When you apply for new credit, your possible new lender performs a hard search on your report which other companies can see. Frequently applying for new credit signals to lenders that you may be in financial difficulty. 

You want to limit the frequency of applications – it’s suggested to keep it to one or two every three months. 

Make payments on time

Make it a habit to pay your bills in full and on time when they are due. This signals to lenders how reliable and responsible you are.

Don’t over borrow

Applying for too much credit and being unable to repay can lead to things like County Court Judgements (CCJs), an Individual Voluntary Agreement (IVA), or even bankruptcy. These seriously affect your credit score and can stay on your record for up to six years.

Only apply for credit when it is required, you can afford the repayments, and you have carried out all of the necessary checks beforehand. Consider performing an eligibility check before applying.

Regularly check for fraud

Get into the habit of regularly checking your credit profile for errors and fraudulent activity. You are looking for any unfamiliar credit applications or increases in how much you owe. If you do spot something, contact your lender and the credit agency directly. 

Keep your home address up to date

Help lenders by giving them a good clean profile. Keep your address up to date and register for the electoral roll.

Build your credit history

Lenders want to see your past activity as this helps them determine how well you will manage the debt going forward. 

If you haven’t had credit before, start small. For example, taking out a mobile contract and paying your bill on time builds credit. Alternatively, use your credit card for small regular bills and repay the card in full every month with the money you would have used from your current account.

Do not use all of your available credit

As we saw in the earlier article, how much you owe affects 30% of the scoring process. To put this simply, the amount of your available credit that you are using determines a significant proportion of your score.

It is suggested to not exceed 30% utilisation (it is a coincidence that the percentages are the same). For example, if you have a credit card limit of £5,000, and you have a £2,000 balance, your utilisation is 40% (5000 divided by 2000). This is too high and should be reduced to £1,500 as a maximum at any given time.

Where you can, reduce your debt to keep within these guidelines.

Use Direct Debits

A handy tip is to simply set up Direct Debits for your small payments. That way, you do not need to think about paying your bill, instead just make sure you have the funds available in your bank account. This looks great to the lender, as you are maintaining good credit behaviour – paying in full and on time.

Summary

The above steps will not necessarily affect your credit score immediately, so it is imperative to get started straight away, especially if your score is rather low or you plan to seek credit soon.

Your credit score and report make up one part of your financial health. If you are looking to really improve your finances, consider reviewing your net worth and managing your finances with a budget and, ideally, a budget forecast.

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