Guest post by Laura Mitchell-Hall
When you apply for any sort of loan or finance, you will usually need to pass a credit check in order to get accepted. That’s why it’s a great idea to keep on top of your credit score. Your credit score is an indicator of your previous financial activity and also a prediction of your future behaviour. Lenders want to be reassured that you will be able to pay back any loan or finance on time and use your credit score to do this. There are many benefits to having a better credit score too.
Why is it good to have a better credit score?
Having a better credit score means that you are seen as less of a risk to lenders. For example, if you were thinking of getting a car on finance, potential lenders want to know that you are trustworthy, and it can work in your favour too. Having a better credit score means that you are usually offered a finance deal with a lower rate which can make it cheaper to borrow and save you money. This also means that you can usually benefit from a wider range of different types of loans and higher credit limits. If you are looking to apply for a personal loan, credit card, car loan with bad credit there are a few ways in which you can increase your credit score.
1. Check your credit file for any mistakes
Before you apply for any sort of finance or loan, you should always check your credit file first yourself. You should then get into the habit of checking your credit score regularly to keep it healthy. You can check your credit score for free using a reputable credit referencing agency. When you access your credit file you should make sure all your information is accurate and up to date. Even having an incorrect address can negatively harm your credit score. You should also take note of the applications you have made for finance or loans. If something doesn’t look right, then you may have been the victim of a fraudulent application in your name. If you need to make any changes, you can contact the credit company who provided your credit file.
2. Prove where you live
Lenders tend to favour people who don’t move around as much and want to know where you live. An easy way to prove your address is to register to vote. Many lenders use the electoral roll as a form verification to stop any fraudulent applications. Being on the electrical register is also recorded on your credit file and can speed up the approval process.
3. Build a credit history
It can be a common misconception that having no credit means that you automatically have a good credit score. Without a credit history that is traceable, lenders have no way to predict what type of borrower you’ll be. If you are looking to build your credit, you can do it as easily as getting a mobile phone contract, utility bill or a credit building credit card.
4. Make all your payments on time
One of the easiest ways to help build your credit is to make your payments on time and in full. For example, if you already have a credit card and have to pay it back, its best to make more than the minimum required and set up a direct debit so you never miss a monthly payment!
5. Stick to soft searches only
If you’re shopping around for credit, you should try to stick to soft search credit checks only. A hard search is usually performed by a lender once you have been approved but multiple hard searches on your credit file can negatively impact your score. However, a soft search doesn’t harm your credit file and it only allows lender to take a quick peek at your file, not the whole thing.
6. Keep your credit utilisation low
Your credit utilisation is how much of your available credit you use. It is recommended that you should only use around 50% of your available credit and if you really want to boost your score, you should use around 30%. For example, to use 30% if your credit limit was £100, you should aim to only use around £300 of that. Maxing out your credit cards can imply to lenders that you are struggling with debt, and they may not think you can handle anymore.
7. Avoid CCJs, defaults and bankruptcy
Missing repayments can lead to things like County Court Judgements, defaults and even bankruptcy. These will stay on your credit report for up to six years and can seriously affect your credit score and the ability to get credit in the future. If you are struggling to meet your repayment deadliness, you should speak to your finance lender on how they can help. If you’re struggling to keep up with your car loan payments, you could consider refinancing a car loan to lower your payments.
8. Disassociate yourself from people with bad credit
If you have taken out finance with a partner or spouse before, you will become financially linked on your credit file. If you no longer have any active credit with someone who has bad credit, its best to disassociate yourself from them. Their negative credit score could impact yours too. You can contact your credit referencing agency to make any changes.