Your credit score helps lenders and credit card companies decide whether you pose a risk to them by borrowing, and plays an important part in your financial life whatever your age.
Unfortunately, a low credit rating negatively affects your chances of being granted a loan, or can severely restrict the options. So how can you improve your credit score to access the best loan and credit card deals?
Here are five tips to get you started:
1. Make sure you’re on the electoral roll
Being on the electoral register shows that you have a fixed address, and confirms your identity to lenders. If you’ve lived at the same address for a long time it can also boost your chances of being accepted for a loan.
2. Don’t miss any repayments
Making all your bills and credit card payments on time is vital for a good credit score. If you fall behind with repayments, the default marked on your credit file stays there for six years, and adversely affects your ability to borrow.
3. Be aware of credit utilisation
Credit utilisation is the proportion of credit you use when compared with the total amount available to you. Lenders usually view low credit utilisation as a positive factor, which can help with a loan or credit card application.
4. Check your credit file for errors
Mistakes on your credit file can be costly but you can rectify them by contacting the firm that provided the information, or by writing to the agency itself. The credit reference agency will place a marker on your credit report to show that an entry is in dispute. Finance companies then become aware that some of the information they’re seeing may not be correct.
5. Don’t make too many credit applications
Making numerous credit or borrowing applications can damage your credit rating, especially if you’re turned down by some lenders. Space out your applications over a period of time, or find out if a company would carry out a ‘soft’ search. This type of search doesn’t affect your credit record, and gives you an indication of whether you’ll be accepted.
What if you have no credit history?
Having minimal or no credit history is as detrimental as a bad credit score. This is because lenders can’t see any record of repayment, and don’t know how well you manage your finances.
One way to overcome this is to use a credit-builder credit card for regular purchases, such as monthly shopping or fuel. Just make sure you pay off the bill in full at the end of each month – this shows you can handle credit responsibly, which over time, will help your credit score.
Understanding the credit system
So how does your credit score fit into your financial life? Although it’s not the only element lenders look at when you apply for borrowing, it does have a significant impact on the outcome.
By improving your credit score you can get access to better deals on loans and credit cards, and it doesn’t need a great deal of work. It’s more a matter of time, and persistence in making sure you pay your bills and any existing loans on time.