My credit score for years was like England’s overall Scoreboard in the Eurovision Song Contest. At the lower end of the leaderboard. I couldn’t figure out how to improve it. Well let’s be truthful here. I couldn’t figure out how to improve it without tackling the wider issues going on at the time. Overspending and Credit Card debt.
What does your credit score mean?
Experian sent out an email this week as part of their Money Matters Week, which posed this question: Do you know what your credit score means? To summarise, a higher credit score means companies see you as a lower risk, so you’re more likely to be approved for credit. A high score indicates you have a history of managing your credit sensibly and making repayments on time. If you have a low credit score, you can change this over time. Check out our 10 ways to improve your Credit Score below.
Your credit report includes things like:
How much money you owe, e.g. on credit cards or mortgage
Your regular payments and whether you make them on time
How many credit accounts you have and how old they are
It was only when I had no salary coming in that I streamlined all of my spending. By paying off a little on my credit cards each month without then putting more on my cards, that my credit score went up! I couldn’t believe it. Years of overspending on my credit cards and only paying the minimum payments meant that I was permanently showing up with a low credit score. How times have changed!
10 ways to improve your score:
1. Register on the electoral roll
Register on the electoral roll at your current address to prove where you live. You can do this even if you’re in shared accommodation or living at home with your parents.
2. Build your credit history
Having little or no credit history can make it difficult for companies to assess you. So your credit score may be lower as a result. This is a common problem for young people and people who are new to the UK. Luckily, there are some steps you may be able to take to build up your credit history. You can open a bank account and apply for a credit card with the bank you are currently with, as long as you show you are managing your money well. Don’t start making multiple credit card applications, which might hurt your credit rating!
3. Make your monthly payments on time
Paying your accounts on time and in full each month is a good way to show lenders you’re reliable and capable of handling credit responsibly. I always try and set my payments to go out on the 1st of every month, so that they leave my account just as my salary goes in. Your credit record shows future lenders when you have missed payments or made payments late.
4. Close unused accounts and credit cards
Having a large amount of available credit may make lenders think you can’t handle more. So, you may want to close any dormant credit accounts and unused credit cards. Long-standing well-managed accounts will usually improve your score. According to Experian, as a general rule, lenders like to see you keeping your credit utilisation below 25%.
5. Keep your credit usage low
Your credit usage is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you’ve used £1,000, your credit use is 50%. Usually, a lower percentage will be seen positively and will increase your score. If possible, try and keep this at 25%. When I was only paying off the minimum payment each month on my credit cards, my credit usage was at an all-time high. My credit score suffered as a direct result. Yours will too.
6. Don’t withdraw cash on credit cards
Withdrawing money on your credit card is not only expensive, but is also an indicator of poor money management. Just don’t do it.
7. Request that unfair defaults are removed
Check if there are any defaults against your credit file. I have often challenged a default if this was not my fault. Check to see if credit cards are registered to an old address. Correspondence may still still being sent there, which can also can pose as a fraud risk.
8. Don’t let your partner ruin your finances
Lenders can see their history when you’re assessed, so be careful if they’ve a bad history. We are talking joint mortgages, loans, bank accounts and sometimes utility bills. Credit cards are not the same. If you split up from your partner then delink your finances as soon as possible. Transfer everything from a joint to individual account, although this may mean paying off credit or loans first.
9. Pay day loans are a big no-no
Pay day loans on every level are just not worth killing your credit score over. Most things will stay on your credit score for 6 years. Unfortunately some mortgage underwriters simply won’t lend to anyone who’s ever had one.
10. Pay off your debt
I spent years paying off 35k worth of debt. Make sue you have an emergency fund saved up for yes, you guessed it an emergency. However, focus your attention on paying off your debt to gain financial freedom. No-one will want to lend to someone whose debt is out-of-control. If your debt is overwhelming you, please get help. National Debtline or Stepchange can help with your finances. You may like to read, 5 tips on how to cope with financial stress.
A comprehensive guide to checking your credit score, Sara recommends the top 3 FREE ways to check your credit score:
The Top Three Credit Checkers – all FREE!
There are three main Credit Reference Agencies in Britain: Experian, Equifax and TransUnion (used to be called Callcredit). They do not all have the same information. None of them are “better”, they are just reporting on information from different lenders.
Your Credit score health is incredibly important to your present and future. I have no intention to buy a house at the moment. Yet knowing that anything on my credit file might hang around for 6 years is a huge shock to the system. I signed up for MSE’s MoneySavingExpert club last year, which is the first time my Credit Score ever improved. However, it started to decrease again this year because I had started to spend again on Credit Cards just before Christmas. Do make this the year you keep a check on your Credit Score. Check our 10 ways to improve it to kickstart the year.