Whether you’ve applied for a credit card, loan or mortgage in the past credit score will have been checked. You may not, however, understand what a credit score is, why it’s important now how to boost yours. In this article, we’ll explore each of these areas.
What is a credit score?
In simple terms, your credit score indicates to lenders the level of risk you represent to them. The higher your credit score, the better you are perceived to manage your finances. Your credit score is a key factor for many lenders when determining if to lend you funds. Their aim is to mitigate the risk to them of you not paying their money back on time.
What are the benefits of a higher credit score?
The biggest benefit of higher credit score is that it’s an indication of being low risk to potential lenders. It will therefore play an important factor in helping you borrow the amount you need. Due to being a lower risk to lenders, you usually have a greater number of lending options available to you. These options often have lower interest rates offered than for those with a lower credit score.
How to boost your credit score
If your credit score is not as high as required to secure the level of borrowing you need, don’t worry! There are steps you can take to boost your score. This is also useful if you do not have an existing credit history, in preparation for looking to secure substantial borrowing, for example a mortgage.
Report any inaccuracies
Your first step should be to obtain a copy of your credit report. Check over the report carefully, noting any negative points. Determine if there are any errors or inaccuracies that could be negatively impacting your score. This is vital as you not want to be penalised for an inaccuracy. Report your perceived inaccuracies to the credit agency, who then have 28 days to respond. They may either remove the inaccuracy or explain their reasons for keeping the notation. If the notes on your credit file are accurate, they will remain there for six years. They cannot be removed earlier, and could impact your borrowing power over this time.
Register to vote
Registering to vote and appearing on the electoral register can have a positive impact. It offers a proof of address for the lender, and validates who you are. Whilst appearing on the electoral register is not essential, it will certainly speed up the identity verification process in credit applications.
Make your payments on time
Payment history is one of the most significant factors affecting your credit score. Make sure to pay all your bills on time. This includes paying credit cards, loans and utilities, on time, every month. Late or missed payments will count against you in your credit report. You can often set up automatic payments or reminders to avoid missing due dates.
Reduce credit card balances
Aim to keep your credit card balances low relative to you credit limits. High credit card balances can negatively impact your credit score. Aim to keep your used credit at below 30% of the available balance. Using more of your credit limit regularly could indicate a reliance on borrowing. Ideally, pay the full amount off your credit card each month. This will not only benefit your credit score but will lead to less interest being paid too.
Manage your account age
One factor impacting your credit score is the amount of credit history you have. If you have a short credit history, you have not had long to prove you can manage your financial obligations. Opening multiple new credit accounts within a short period can lower your average account age. This will potentially raise red flags to lenders. You should only apply for new credit accounts when necessary, and be selective about the accounts you open. Where possible, keep old, unused credit accounts open, especially if they have a positive payment history. Closing them can shorten your credit, history which may negatively impact your score.
Use eligibility checkers
Failing credit checks will be noted on your credit file. This can be avoided by using eligibility checkers before you apply for credit or loans. Eligibility checkers such as that available on Money Saving Expert* will give you an idea if your application will be successful. If an eligibility calculator is not available for the product you are looking to apply for, you can check its minimum eligibility criteria. This will flag if there is any criterion you do not meet. By identifying this before applying, you can save a failed check appearing on your credit file.
Be patient
Improving your credit score takes time and consistent effort, but it can be achieved. Be patient in implementing good financial habits and over time your efforts will be reflected in a boosted credit score. By following the advice offered in this article, you can both improve your credit score and strengthen your overall financial health.
Whilst it may be disheartening to have a poor credit score, don’t worry. There are still options available for you, if time is of the essence. Contact our team to discuss your options.
* Please be aware that by clicking onto the above link you are leaving the Bell Mortgage Solutions website. Please note that neither Bell Mortgage Solutions nor PRIMIS are responsible for the accuracy of the information contained within the linked site accessible from this page.
The information contained within was correct at the time of publication but is subject to change.
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