You’ve probably heard about credit scores and credit history, you might have even done a little more research, or looked into finding out what yours is. If you’ve ever applied for a mortgage or other significant financial commitment, you might have looked at your score to try to get an idea of the likelihood our your application being accepted. But, in truth, most of us largely ignore our ratings until we need them. It all seems a bit overly complicated, and if we’re honest, we’re not entirely sure why it matters.
Well, in the UK, our credit scores, and our reports are used to work out how good with money we are, and how big a risk we represent to lenders. If you’ve got a poor score, a lender might see you as a big risk. They might wonder if they are going to see their money again, or if you can be trusted to make payments on time. You might think that this doesn’t matter if you aren’t yet in a position to think about mortgages or large loans, but you might find that you can’t buy anything on credit, get a credit card, or even get approved for a mobile phone contract, without a positive credit report.
Your credit score is crucial. Even if you don’t think it matters now, it will do in the future, and the bad news here is that it takes a long time to correct a poor score. The financial choices that you make today can continue to affect your credit score for years to come. In the UK, the average credit score, as measured by Experian, is 759, which falls into the fair bracket. But, it’s thought that for those aged 26 – 30, it’s closer to 740, which is just hovering above poor. Whatever your score currently is, it’s worth remembering that it could always be better, and it’s still worth making some improvements. So, here’s a look at seven secrets to a better credit score.
Of course, the first thing that you need to do to avoid a poor score is to check it. Even if you think it’s fine, it’s always worth knowing, and you can usually check it for free. This gives you an idea of where you are, lets you see the negatives on your report, gives you a way to track your progress and gives you a much better idea of how likely you are to be approved for credit.
When you check your report, don’t just look at the number. Look at the history, if your score has gone up or down by more than a few points in the last year, find out why. Does the change seem right? Then, look at any negative factors on your report. These are the things that are pulling your score down and might include things like missed payments. If there’s anything on there that doesn’t seem right, you can always query your credit report to get items removed.
Don’t Assume Your Score is Low if You Have Debt
A big mistake that people make is assuming that their credit score will be bad if they are in debt. But, this isn’t always the case. In fact, if you manage your debts well, they could even improve your score and your financial prospects. Have you considered improving your score with a guarantor loan with bad credit? Many people take out a loan or another form of credit, to consolidate debts and make repayments more manageable, or just to boost their credit scores by making regular payments, and proving themselves to be responsible with debt management. Young people often find that having no credit history is almost as bad as a poor score, and so take out credit to help them.
Try to Stay Away From Credit Limits
Having credit is good, getting too close to your limits isn’t. It might suggest that you aren’t good at managing your money, or that you can’t afford to borrow anymore. Ideally, you should have half of your credit available, but when this isn’t possible, do your best to avoid maxing out accounts and cards.
Don’t Miss Payments
One of the worst things that you can do for your credit score and one of the hardest to recover from is missing payments on debts, but also on your bills. Set up direct debits where you can, even if it’s just for the minimums.
Find Some Stability
Stability is excellent for your credit score. It shows that you can be relied upon and are unlikely to make massive life changes which could affect your finances. Try to live in the same house, stick to the same accounts and contracts, and keep the same job.
Don’t Make Unnecessary Applications
Applying for credit of any kind makes a mark on your score. One application here and there won’t do much harm, and will quickly vanish from your report. But, too many requests in a short period can be bad for your report, even if they are accepted. Only apply for credit that you absolutely need, and think that you will get.