Credit scores are what lenders use to calculate how risky it is to lend you money. They’ll look at your credit history – things like bank loans, credit cards and bills – to see how reliable you are when it comes to paying off the money you owe. Based on your score, lenders decide whether or not to lend you money, how much you’ll get and at what rate of interest. A lot of factors can affect your credit score. A low score could be because you’ve missed past payments, or it could be because you simply haven’t got enough credit history for lenders to make a decision. Here, loans by mal shares a word or two about boosting your credit score.
Check your credit history
The more you know about your credit score, the more prepped you’ll be for boosting it. Your lender doesn’t have to tell you what your score is, so it’s a good idea to know before applying for a loan, since making lots of applications can hurt your score. There’s no single, universal credit score. Each lender will use their own scoring system, but you can get a ballpark idea of your score by pulling a copy of your credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion – for free!
Correct any mistakes
Another advantage of checking out your credit report is that you can correct any mistakes you spot. A survey last year showed that around 10 million adults in the UK found errors on their credit files, so it’s worth checking the information is accurate. An incorrect address, record of missed payments, fraudulent credit applications or financial associations with ex partners could all be lowering your score. You can report mistakes to the credit bureau, which has up to 30 days to investigate and tell you what action they’ll be taking.
Make sure you’re registered to vote
Lenders search the electoral register to double check details, especially the address you’ve provided on your application. It’s important that lenders are able to rule out fraud and identity theft. Checking you’re on the register is one of the simplest ways you can improve your credit score by as much as 50 points. Although you might not be registered if you move around a lot, or if you don’t vote, not being on the electoral register is a red flag that works against your application. Not sure if you’re registered? You can contact your local electoral office or register online – it’s straightforward and it only takes around 5 minutes.
Make your rent, utility bills and subscriptions count
If you pay your rent on time, there’s a free scheme called the Rental Exchange Initiative that millions of private renters and social housing tenants can use to bump up their credit file and boost their rating. Launched in March 2016 by Experian and The Big Issue Group, it records your rental payments and adds them to your credit file. You can also use Experian Boost to grant Experian access to your current account information on your salary, council tax payments, utility bills, and even your subscription payments like Netflix. These can all help raise your score by showing lenders you make regular payments on time.
Bulk up your credit file
Around 5.8 million people have a ‘thin file’ in the UK. This means that credit reference agencies don’t hold any information on you, which makes it hard for lenders to assess if you’re a risky prospect. If you haven’t got a credit card, getting one helps get your foot on the ladder. Experian’s page of credit builder credit cards is a great place to start, but annual interest rates tend to be high, so don’t use them to borrow. An overdraft facility on your bank account also counts as a line of credit and can help to build your credit score.
Keep your credit usage low
It should go without saying that a lot of these credit score boosters can have the opposite effect if you go into the red. Developing good spending habits is key to boosting your score. Lenders won’t just look at your outstanding balances, but at how much credit you have available. Keeping your credit card balance below £50 can give you a boost of 60 points, while paying more than the minimum or the full amount each month lets lenders know you’re not struggling to pay off your debts. It’s worth keeping in mind that one late payment on a credit card or loan can dent your score by as much as 130 points.
Bear in mind that credit scores are determined by lots of factors – tackling some of these might have a fast impact on your score, but others will take a while to make a difference. It’s best to take action before you begin the process of contacting lenders, but tackling a few of these suggestions should help to raise your score within a month or two.
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