Quickest & Best Ways to Improve Your Credit Score
What Do You Think Your Credit Rating Would Be?
What Is A Credit Score?
A credit score is a numerical assessment of your creditworthiness, calculated by taking into consideration your credit history, your current status and other various pieces of complex information.
It is used by banks or loan companies to determine the risk you pose to a creditor and can illustrate the likeliness that they will recover the amount due to them.
Credit scores can be used to assess eligibility of loans, mortgages, credit cards, mobile phone contracts, property leases, and even some types of employment, so it is very important to ensure your score is as good as possible!
I personally have repaired my credit score from being a high risk and low score to being very low risk and the best score possible. In terms of my personal situation, I had never missed a credit payment or even made a late payment—I simply took out too many credit accounts.
Read on to find out how you can improve your score to increase chances of getting a mortgage or even just having peace of mind that options are available in terms of future credit.
Find out your credit score. You will use this mostly as a comparison, so you can tell whether your efforts have actually improved your credit score.
If you haven't used these companies before, you can use a free trial with Experian or Equifax, or pay a small fee to the same company for a one-off report to be run. Or, there is now a free credit report website: clearscore.com which uses information from Equifax, and you can sign up to the site to check and monitor your score over time. Either way, checking your own credit score will not reduce it.
Some websites can give hints on what, if anything, you should do to improve your particular credit score. Remember, everyone's situation is different, so you should try to assess as much about your particular situation before you start.
Stop applying for credit. If you are being denied credit applications, there will be a reason for this, and it is likely tied into your credit profile or personal affordability.
Every time you apply for credit with a company and they run a credit check, they leave a stamp to show that the application was made. These are often high imprint stamps, meaning other companies can see them later. If you continue to make applications for finance, the stamps left by the companies can actually lower your score. This is particularly true if you apply for a lot of different sources of credit within a six month period, as it makes you seem desperate for money.
Look at your finances, and how you pay your debt off. Pay things as a matter of priority- i.e what is due first, as a starting point. Be sure to pay things on time- the payment date is not usually a suggestion, and even if something is a day or two late, it can result in a flag on your credit file and after so many flags, your score will begin to decrease.
If you are making any additional repayments towards anything, start by paying things with the highest interest rates- this means that on reducing the balance on these items, you will pay less in the long run.
On the other hand, also consider accounts that have trivial balances- those you could potentially pay off in less than 3 months. If you have fewer credit accounts, you will improve your score. Pay off those with small balances whenever possible.
If feasible, think about a consolidation loan or credit card. This would only really be beneficial if the interest rates were lower than those on your current products, and you had enough of a credit score to actually be approved for one. Typically, Credit Unions are able to offer better interest rates on loans than banks, so they are a good place to start. You can also get a lot of great transfer deals on credit cards with interest-free periods for a certain time, but be sure to check any other fees included.
4. Clear Out
Close any inactive accounts. For example, if you have a catalog or store-card with a credit limit, but you have no intentions of using it, contact the company to cancel down the account. Even though the balance is at 0, there is a potential to use this credit, so it can again have a negative impact on your score.
Also, try to get rid of any accounts with really low balances, as the more credit accounts you have open, the worse it looks.
5. Register To Vote
Ensure you are on the Voter's Role. This helps your credit score as it allows companies to keep track of previous addresses, as well as any debt left there. There are some companies who will simply not lend to someone who is not registered to vote.
6. Build Your Credit Profile
If you are in the position of having a low credit score because, surprisingly, you have never actually taken out any credit, you may feel that you in a vicious circle. No credit score means no credit granted...and so on.
However, there are products out there which focus on building a credit score. For example, if you get a credit builder credit card, you can use it to make a small purchase, then pay the account in full at the end of the month. This regular clearing and responsible demonstration of using a credit card can build up your profile.
You can also use certain mail-order catalogues to do the same. Some of these give a pre-approved amount of credit with no need for a credit check. It is worth checking whether a credit check will be run, as too many checks in a short time period can be detrimental to your score.
Continue to monitor your score. While I personally wouldn't pay for a subscription service to a credit check agency simply because the fee could be going towards my actual debt, I would say that you can continue to periodically check your score to ensure your efforts are making a difference. Every 3-6 months is adequate, and keep a copy of your report so you can then compare and feel proud of your achievement!
It sounds like a strange thing to do, particularly if you have a lot to pay off, but saving is a way of planning for the future, and can also ensure that a fund is in place for the emergencies that you would usually reach for a credit card for.
It also helps you to mentally feel as though you have something to show for the money going out each month. It can be difficult to justify actually paying for the winter coat you bought 4 years ago that has now been binned, but in saving, you have a constant reminder that things are improving.
Even as little as £10 per month will give you £120 in a year... as your finances get more stable, pay more towards your savings. I personally had a loan with my credit union which I repaid £100 per month for. When I had cleared the balance, I simply kept the direct debit in place because I was used to the money going out each month. I literally tricked myself into saving. In one year, I had £1200 which actually made a nice starting fund for my mortgage deposit!!
Remember that, as with everything, improvements take time. Continue to pay your debts and close the accounts as the balance hits 0 to ensure that your credit score continues to increase.
Regularly do credit score MOT's—at least once a year—to reevaluate your finances and tidy everything up. Stay organised and have easy access to all of your credit documentation. If it is all well organised, this will make your financial checkups so much easier.
I have personally went from a low to mid-way credit rating to the best possible by following these steps. I hope they can help you into doing the same.
If you have any questions I may be able to help with, feel free to comment below, and I will get back to you as soon as I can.
Questions & Answers
© 2014 Lynsey Harte