A credit score is a rating of your financial history and your ability to pay bills on time to avoid arrears. Creditors and companies can add defaults to your credit file when you miss payments, which reduces your overall score. On the other hand, paying bills and debts on time can maintain and improve your credit score.
Why should I improve my credit score?
Your credit score is taken into account when applying for credit. The lender will look at your credit file to see how you’ve handled money in the past, including previous credit cards and loans.
Therefore, you should want to improve your credit score to improve your chances of being accepted for credit in the (near) future. If you’re applying for a mortgage in the next year, it’s not too early to start thinking about how to improve your credit score.
Five ways to improve your credit score
#1: Register on the electoral roll
By registering on the electoral roll at your current address, you can give your credit score a slight bump. This is because it helps identify you. You are allowed to register on the electoral roll at your current address even if you’re renting and in shared accommodation.
#2: Make payments on time
One of the easiest ways to improve your credit score is to keep paying bills on time. This suggests to lenders that you can manage your finances and won’t fall behind on payments. If you have trouble keeping on top of bills, you could try using a monthly spending budget.
#3: Lower your credit utilisation ratio
Your credit utilisation ratio is the amount of credit you’re using compared to the amount of credit you have available.
For example, if you have two credit cards with a limit of £3,000 each but have only used £2,000 on one card and £1,000 on the other, you have a 50% credit utilisation ratio. This is because you’ve been given £6,000 credit in total and have spent £3,000 in total. You’ve only used 50% of the credit.
Lenders view low credit utilisation as a positive because it shows you spend what you need rather than what is available. It’s best to keep your credit utilisation below 30% when possible.
#4: Check for errors
Sometimes companies and lenders will make a mistake. They’ll add things to your credit score that can wrongfully lower your score. You should check your score and look for these errors. If you see one, you can ask the company or creditor that added it to remove it too.
#5: Avoid multiple credit applications
Making multiple credit applications at once can cause your credit score to decrease and raise a red flag with lenders. It suggests you might have an immediate financial problem that isn’t visible on your credit file, especially if you also have a sound credit rating.
It’s much better to make a single application and wait for the outcome of that application before applying elsewhere. And it’s even better to take some time between applications.
Are you preparing for a credit application?
If you’re looking for ways to improve your credit score, there is a good chance you’re applying for a secured loan or mortgage in the near future. Moneysprite can assist with your credit search to ensure you look for the right type of loan and to uncover the most suitable deals. Get in touch with our team today!