Your credit score is the key to a lender agreeing to grant you a loan, mortgage or credit card. Although there aren’t any hard and fast rules over how exactly a potential lender must calculate your credit score, the purpose of it is to discover how reliable you are likely to be as a creditor.
There is no overnight fix to solving a poor credit history, but there are several simple steps that you can take to improve your credit score relatively quickly:
Get yourself a credit card
If you don’t have a credit card, get one. Lenders like to see proof of your reliability to pay off debt and so actually using credit is important. Just because you have a credit card doesn’t mean that you should spend big. On the contrary, only use your credit card sparingly and preferably use it to pay multiple, small instalments. It can be a good idea to purchase what is called a secured credit card. You have to pay a lump sum up front for this but all activity will be recorded by the credit agencies.
Check your credit limits no
It is always worth checking with your current lenders, whether it’s a bank, building society or elsewhere, exactly what your credit limits are. You may find that your limits are being artificially depressed and that your actual limit is in fact more generous than you thought it was. If so, operating at a greater distance to your real credit limit will likely work in your favour. Also, it may be possible to get your credit limit revised if needed.
Check your credit report for errors
In the UK, there are three registered credit reference agencies, which have permission to sell your credit details to lenders. Their reports may well form the basis of your credit score. However, the good news is that you can check them out anytime. Visit Experian CreditExpert, one of the registered agencies, to receive a credit report to look through. It is worth doing this and examining it carefully for errors. You might find that credit limits have been incorrectly noted or payments which were settled are still listed as outstanding.
Pay off your balance
You must not allow your balance to balloon. Much of your credit score is likely to be based on the amount of lingering debt you have amassed. Experts say that if you can keep your balance under 10% of your credit limit, you are likely to lower your credit score significantly. However, there is a careful balance to be struck. You don’t want to entirely eliminate your good debt, the credit that you pay on time like clockwork. This reliability will count hugely in your favour. As a result, it is a good idea not to close reliable accounts, as they serve as a good example of your credit record.
Pay bills on time
This may sound obvious, but the value of paying on time cannot be overstated. Even the most innocuous mobile phone bill must be paid on time. If not, that late payment could become an incriminating statistic in your credit report. Set up a reliable system to ensure timely payments, whether it’s a direct debit, a text message reminder or something else entirely. If you really get stuck, you usually have 30 days from the due date to make amends before late payment is reported.