Having a poor credit rating can have a significant impact on your personal well-being. For starters, it can make it virtually impossible for you to get a mortgage, and it means that you cannot have credit cards and overdrafts to fall back on a safety cushion if you encounter financial difficulty or unexpected costs arise.
What Is a Credit Score?
A credit score is a report that helps banks and other financial institutions decide whether or not you are an eligible candidate for borrowing money. The report takes into consideration several years worth of borrowing behaviour (how much you borrowed, whether you repaid debt on time, whether you defaulted on any plans, etc) and as such, improving your credit rating is not something that can be done immediately overnight but it is possible.
7 Ways You Can Improve Your Credit Rating
1. Take Out a Store Card
It’s not just bad credit that can make you an undesirable candidate for lending. If you never borrowed anything before then you can also be considered as a risky customer since you are an unknown and the lender has no information as to whether you are likely to pay your bills or not. If you have a low or non-existent rating then you may not qualify for a full-blown credit card or personal loan but a store card may well be possible. Buy something small using your card from a store that you like and always pay it off in full ahead of the payment being due. You’ll build up a good score and re-establish credit in no time.
2. Ensure That There Are No Errors on Your File
There are various credit agencies that enable you to access your credit file. You typically have to pay a small fee to access your report from most agencies (Experian for example) but free sites also exist (however sometimes there is a lag in the information being updated via the free sites). Check your report to gain an understanding of what is affecting your file and reputation. There is a possibility that there could be errors detailed on here that you could have corrected.
3. Pay Your Bills on Time
Any financial contract or repayment schedule has the ability to affect your credit rating and household bills are no different. When it comes to paying your gas and electricity bills, your cable bill and your cell phone plan, make sure that you always pay on time. This demonstrates to lenders that you always meet repayments on time and that you are a trustworthy candidate for a personal loan or a credit card.
4. Be Vigilant Against Fraud
When checking your credit report you will have visibility on all financial products that you have utilised in recent years. If your credit rating is low and you feel that this is unjust then go through the report with a fine tooth comb to ensure that there is nothing unfamiliar showing up. Fraudsters can steal your personal details through online purchases among other methods so check to be sure that no-one has applied for credit in your name.
5. Reduce Outstanding Debt
Some people get in a terrible cycle with debt; they take out a credit card and treat it as if it’s free money, then take out a loan to repay their credit card, and it just goes on and on in an endless cycle of debt that eventually spirals out of control. Instead of trying to improve your credit rating to take on more credit, try to work to reduce existing debts first. Even if you are keeping up with minimum repayments, if banks see that you have a lot of debt outstanding then they may be reluctant to lend you more money if they feel that it will be some time before they get it back.
6. Make Sure That You Are Not Linked with Someone Else
When checking your credit file, another thing to look out for is if you are linked with someone else who could be impacting your rating. As an example, perhaps you and your partner are both “M Smith”, and there is the potential that the two of you got mixed together into one record. It’s also worth noting that even if you are someone conscientious that always pays their bills on time if you live with someone who is in debt, it will reflect negatively upon your address and affect your credit rating also.
7. Don’t Go Crazy with Applications
If you want to apply for finance, but you’re unsure about whether you will be accepted or not, it is unwise to keep making application after application to find out. The best way to see if your credit has improved is to monitor your reports. This is because every time you make an application, it causes a small drop in your credit rating which lasts for a year. The amount by which your credit score drops is not significant unless you are making numerous applications, however, several can look iffy to potential lenders if they see that you have appeared to be frantically and frequently applying for credit.