Credit scores don’t matter until they do – and you’re trying to buy a car, apply for a mortgage, or open a credit card, and the outcome depends on your credit report!
A high credit score can be hugely beneficial, ensuring you attract competitive borrowing rates and can borrow as and when you wish, without any stumbling blocks.
If you’ve overspent during the festive season or have ongoing issues with your credit scoring, please run through our tips below to get you back to where you’d like to be.
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Registering to Vote
One of the easiest ways to boost your credit profile is by registering on the electoral roll. It doesn’t have anything to do with your finances but verifies you have a permanent address.
Credit bureaus assign higher ratings to voters because it adds a layer of security to any vetting processes, with a specific home address to cross-check previous debts against.
You don’t need to own a property to register and can even use your parent’s address if you’re living at home.
Responsible Borrowing
Interestingly enough, sometimes, having never used credit can work against you!
Here’s why:
- Taking out credit, such as a loan or credit card, gives a credit bureau some data to assess whether you make repayments on time.
- Without any borrowing, your credit score will likely be very low.
- Lenders perceive a low credit score as similar to a negative credit record, even if you’ve lived well within your means and never borrowed anything.
Making your payments in full and on time showcases responsible borrowing and makes a lender more assured that you can manage debts within your income. You can read more about low credit scores, even if you have savings, in this guide which answers many of the common questions people have about their credit scores relative to lenders.
Under-Utilising Credit
Another useful tip is that you’ll get a higher credit score if you don’t use all the available credit you can borrow against in your loan or credit card facility.
Say you have a card with a £2,000 limit, and you’ve borrowed £1,990. Your credit report will show a credit utilization metric of 99.5%, which isn’t great.
Using less than 50% of your credit limit (so spending under £1,000 on this card) reflects well and shows that other lenders consider you eligible for more credit than you need.
It’s all about showcasing the responsible borrowing we just looked at – if you can keep your credit usage under 30%, all the better.
Resolving Credit Report Errors
Even the most technical systems aren’t infallible, and it’s not unheard of to have a few mistakes on your credit report, which could be damaging.
If you aren’t sure what your credit score looks like, it’s well worth downloading copies from all the major credit reference bureaus and examining the accounts that show.
There could be:
- Credit accounts you don’t require, such as a credit card you never use.
- Small balances on unsecured loans, such as a mobile phone contract you can pay down.
- Errors, including closed accounts showing as live.
It would help if you resolved any inaccuracies on your credit report with the named lender, who can transmit an updated record to the credit bureau.
This YouTube video from FICO is also helpful if you need a hand understanding how to
interpret your credit file.
Benefits of Improving Your Credit Score
Even if you don’t have any big purchases coming up, taking a little time to understand your credit rating can be time well spent.
When you do come to apply for credit, you might find that a low score takes several months to repair to an acceptable level, which could pour water on plans you have, such as buying a home.
As a lower-risk credit applicant, you won’t just find it easier to be approved, but you’ll pay lower interest rates, particularly on mortgages.
Credit scores can also be factors in applying for insurance. A healthy credit score will allow you to reduce your outgoings on expenses like car insurance and have greater flexibility if you plan to spread that cost over the year.
How Quickly Can I Improve My Credit Rating?
As we’ve mentioned, improving your credit isn’t something you can realistically achieve overnight, and it will take a few months at least to see a tangible difference.
That depends on several factors, for example:
- Some lenders might want to see at least six months of on-time repayments, whereas others might require a year of responsible borrowing to approve an application.
- New bank accounts or credit-builder accounts take a few weeks to crop up on your credit report and a few months to mature and show consistency.
- Severe credit issues, like bankruptcy, are removed from your credit report after six years. You can’t do much to eliminate a past problem any sooner but will need a higher level of good financial management to demonstrate that your affairs are now under control.
Keeping your Credit Score High
Once you’ve achieved a reasonably positive credit score, you’ll need to keep an eye on your spending, saving, and borrowing habits to avoid it dipping back down again.
The main priority is to make sure you don’t fall behind with repayments or things like rent. A default, late payment, or even court judgment will all have a long-term impact on your credit report, so you need to stay up to date.
Overborrowing is also common, and if you’re offered a huge facility, it might be tempting to use it and splash out on a holiday you can’t afford within your income.
Borrowing only what you need will keep you clear of credit issues and avoid scenarios such as falling into arrears.
Limiting credit applications is also beneficial, especially if you proceed to a full application, where your lender will run a ‘hard’ credit search that appears on your credit report for the next year.
Numerous applications and credit searches can appear to be desperation for borrowing, so signal a point of concern for lenders.
Finally, it pays to be conscious of fraud. Many digital scams are circulating, and falling prey to one could mean that a criminal takes out loans in your name, drains your bank account, or even assumes your identity.
Safe, considered borrowing, regular and on-time repayments, and vigilance about the potential for online fraud will all help keep your credit score just where you want it.
