Knowing your credit score is incredibly important if you want to keep your finances in check. It is even more vital to know what your credit score is if you are looking to apply for credit, such as making an application for a credit card or applying for a mortgage. However, once you know your score on your credit file, it may not be what you anticipated or hoped for. This can have a detrimental effect on any applications you making for lending money: a bad credit rating can mean you are refused credit by lenders. Nevertheless, hope is not entirely lost! There are ways in which you can improve your rating so that you can improve your chances of making a successful application. Here is a guide to get you started that can help you improve your credit score.
What is a credit score?
Whilst we have previously given a brief overview of credit scores, let’s get down to the exact details of what a credit score is. The credit score is all the information held on your credit report, and the score you have dictates whether or not lenders will lend to you or not, as well as the interest they will charge, and how much they will let you borrow in the first place if it at all. However, a credit score isn’t the same across all companies: lenders have different methods to calculate credit scores and they use different criteria to make their assessment as to whether you will be accepted or declined.
Credit scores are used to make decisions for applications such as:
- Credit cards
- Store cards
- Short-term loans, such as payday loans
- Entire repayment record
- Mobile phone contracts
- Insurance
- Secured loans
- Mortgages
- Car finance
It is also should be considered that there is a chronological order of importance when it comes to credit scores. The most recent information on your credit file will be the most pertinent to lenders when they make an assessment.
In addition, if your credit report shows that you missed multiple repayments for other loans, this could end up working against you. Some lenders may not accept your application, or they may charge you at a higher rate of interest.
Know that you know exactly what a credit score is and all that it entails, let’s take a look at how you can improve your score.
What is a good credit score?
As previously mentioned, different lenders will use certain metrics in order to assess your application, and therefore they have different credit rating scores. Checking your score has been made a very easy thing to do, with the most reputable credit scoring agencies offering customers the option of receiving their credit file for free. We take a look at the three main credit rating agencies, and what is considered a good credit score for each company.
- Call Credit: A rating of 4 out of 5 on their rating scale
- Experian: A rating of 880 out of a possible 999
- Equifax: A rating of at least 420 out of a possible 700 on their scale
Now that you know what constitutes a good credit score amongst the top three credit references agencies, let’s take a look at some of the best ways to improve your credit score simply and also effectively.
Dissociate from a financial partner with poor credit
Where you aware that lenders will take into consideration the scores of any person you have a joint bank account or mortgage with, and this could affect your own credit score? This is if they have a poor rating. Consequently, if you split up, or they do have a bad rating you should make it a top priority to contact credit reference agencies.
Getting onto the electoral register
One of the easiest ways to improve your credit score is to get on the electoral register. This is due to the fact that lenders will always check the electoral register to verify your identity and address history. If there is no trace of you, then quite understandably, this will reduce your chance of being accepted for credit. You can sort this out online on the GOV.UK website.
Close any unused direct debits, credit or store cards and mobile phone contracts
A simple step you should take if you are looking to improve your credit rating is contacting companies directly to close any accounts that you do not use. This is because potential lenders will be looking at all the accounts you have open, and the amount of credit you currently have available, which could affect your credit score.
Spread out credit applications
When making applications, try to ask for quotes first from companies, so that you can see if it meets your personal requirements and also before you are then searched by credit reference agencies. This is because every credit search carried out on you can have a negative effect on your chances of a successful application. As a result, spread out credit applications, and wait to hear back from companies to see if you have been approved for credit or not before moving onto the next application.
Pay off any existing debts
Most lenders, if not all, will be looking at how much debt you currently have, and how well you are managing it, in order to decide whether to approve or refuse your application for further credit. Therefore if you possibly can, you should attempt to pay off more than the minimum repayment option to improve your existing credit score.
Credit builder prepaid cards
Consider finding out more about credit builder prepaid cards if you are seriously concerned about improving your credit score. A prepaid card can be a fantastic way to build a positive credit report. With one of these cards, you could use it to make a few small manageable purchases each month and then make prompt repayments. Over the course of time, using a prepaid card can help to improve your score with minimal risk involved (as long as you use one of these cards sensibly).
