Having a good credit score is really important to your financial life. A better credit score can enable you easier acceptance rates and better finance deals. If you find yourself with a low credit score, you may be wondering why or you may know exactly where you’ve gone wrong. Whatever your situation, increasing your bad score can be possible.
The guide below explores why your credit score is important and also how to start to rebuild your credit situation.
Why is your credit score important?
Your credit score is like your financial CV. It shows how you’ve managed credit and debt in the past and your score can reflect which type of borrower you are. If you’ve missed payments before or have high levels of existing debt, you may find yourself with a low credit score. When you’re applying for things like cars on finance bad credit, a potential car finance lender will want to have a look at your score.
People who have missed payments in the past pose more of a risk to the lender and they may be worried you won’t pay your finance back. Having a better score could also see you get accepted for car finance easier and give you access to lower interest rates. It’s not just your car finance deal you can save money on either, you will usually be required to pass a credit check when you apply for a mortgage, credit card, store card, mobile phone contract or a personal loan.
How to increase your credit score
Increasing your credit score can be possible but it can take time too. Rebuilding your credit score means creating new financial habits and sticking to them.
Following the guidance below, you can start to improve your score.
1. Check your credit report
The first thing you should do is check your credit report. You can check your report for free and you will get access to your full file. When you check your credit report, you will be able to view your credit score and all the information it holds about you. You should check that all your information listed is accurate and up to date. Having incorrect information on your credit file can negatively impact your score. You can also view any financial links you have.
If you have taken out finance with someone else and they have bad credit, if the credit account has been closed, it can be good to disassociate yourself from them. Their bad score could be affecting yours too. You can contact the credit referencing agency who provided your credit report if you need to make any changes.
2. Pay your bills on time
One of the biggest factors that can affect your credit score is your ability to make payments. You should make sure any current debts you have are paid on time and in full. If you have a credit card, you should always try to pay more than the minimum amount required as it could indicate to lenders that you are struggling to manage your debt. Meeting all your current repayments can help to shape better financial habits, clear your debts, and help you get accepted for other forms of credit or finance.
3. Clear existing debt
Having high levels of existing debt can put potential lenders off. They may be worried that you can’t handle any more credit and may decline you. Having a lot of debt can negatively impact your credit score and it makes it hard for you to pay off other finances. You should try to reduce any credit cards, store card debt or loans before you start applying for finance. This can make it easier to get accepted and also frees up more money for yourself.
4. Register on the electoral roll
In the UK, the electoral register is a list of all the people in the UK who are eligible to vote. Being on the electoral roll doesn’t directly affect your credit score but it can be used by lenders. Lenders use the electoral roll to verify that you are who you say you are and prove where you live.
5. Keep credit usage low
If you’re working on your credit score, it’s important that you keep your current credit usage low. It recommends that you use around 50% of your available credit or if you really want to excel your finance, only using around 30%. For example, if your limit on a credit card is £1000, you should only use around £300 and pay it off each month. It’s also recommended that you don’t make multiple applications for credit in a short space of time as it can negatively impact your credit score.
6. Build a credit history
If you’ve never taken out finance before, you may assume that you have good credit. However, having no evidence of finance means lenders don’t know which type of borrower you are. You could start to build a credit history by getting a mobile phone contract in your name and paying it each month or using a credit building credit card to make small purchases and clearing them on time.
Also read: 5 Ways to Get Approved for a Higher Mortgage Loan
