How to Improve Your Credit Score: Everything You Need to Know

What is your credit score and why is it important?

Your credit score may just be a number, but it can have a huge impact on your life. A credit score shows how well you handle your finances and how much of a risk you pose to when applying for debt. It is the determining factor in your eligibility for a loan or credit card, and also influences how much you can borrow and the credit limit and interest rates applicable. It is looked at when you apply for a mortgage, a credit card, interest free credit purchases, mobile phones, a new bank account. Any product that may mean you will owe money to a company.

 Your Credit Report

A credit report can say a lot about a person. It includes personal information such as your address, employment details, and Social Security Number, but these don’t affect your credit score. What does affect your credit score in your credit report are your credit accounts. Lenders include a report of your payment history, remaining balance and loan amounts. Your credit report also includes information on inquiries made about your account over the past two years, as well as information on IVA’s (individual voluntary arrangements), trust deeds, bankruptcies, defaults, foreclosures, etc.

What Lenders and Creditors Know About You

Your application for a loan or credit card goes beyond your credit report and credit file. When you apply, make sure that all information is accurate and that there are no typos or small mistakes. Your account behavior on your credit card, loans, or contracts is also available. A lender will also know your loan history and your history with service providers, like your phone, internet, or energy providers. If you have committed fraud before, this information will also be available to potential lenders.

Short Term Solutions to a Bad Credit Score

Whether you have a bad credit score or you have no borrowing history to speak of, there are things you can do to boost your credit score in the short term. One thing you should do immediately is to cancel all your unused credit cards to avoid falling victim to fraud. You should also cease applying for credit, at least until you’ve resolved any past issues with debt. In the UK, you can also register as a voter to improve your score.

Improving Your Credit Score in the Long Term

You need to be able to show lenders and debtors that you are responsible enough as a borrower. This means that you have to build a respectable history of paying your bills on time.  Another way to build your credit is to get a credit card and make sure you make all of your payments. One thing you have to be aware of is that credit-building credit cards charger higher interests. You also have the option of using a credit-building prepaid card with low fees.

 

Consistency of Information in Your Applications

You need to make sure that all your applications have accurate and consistent information. For example, if you put in one application that your salary is £20,000 a month, but in the next application you put in £2,000, your application will be rejected. If you write that you are a software developer in one application and simply “developer” in the next, potential lenders will catch that mistake. This is to avoid instances of fraud, and lenders are merely protecting themselves by being strict about consistency.

 Old Debt on Your Report

 Instinctively, you probably think that getting old debts off your report is a good idea. However, avoid making calls and hounding creditors to get that record or IVA off your file once you’ve paid your debt. It will disappear from your report in a few years. Actually, having a “good” debt is reflected in your report can be beneficial. It shows that you’ve paid off your debts and it can improve your score. In fact, it’s a good idea to leave good debts for as long as possible in your report.

 Linking Your Credit History With Another

 It’s not a good idea, especially when you have a bad credit history. While you may trust a friend, a parent, or a significant other in other things, linking your finances with them might not be a good idea right now. When your credit is linked with someone else’s that means that their own credit history will be taken into consideration when your credit is scored. Linking can deter you from improving your score, so it might be a good idea to separate joint accounts in the meantime.

The Benefits of Stability

When you seem like you’re living a stable life, your loan application looks better and it can get you past security checks. Even small things like having a fixed phone line at home can improve your chances. If you own a home instead of renting, if you’ve held your job for a while, and you’ve been at the same address and with the same bank for a long time, you look all the better. A more stable lifestyle looks better on your file and will help boost your credit score.

This was a collaborative post with Creditfix

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