Seven tips to improve your credit score

If you are considering applying for a loan or have previous credit commitments, your credit score comes into play. Maintaining good credit is essential so that you can get loans or mortgages when you want them. Your credit rating affects how much you can borrow, but it can also affect the deals you qualify for.

Your credit score

When you take out a loan, credit card, or another type of credit, your credit score is used to determine if you are eligible. The information held on your credit report will establish a credit score. Your credit rating is based on:

  • The information on your credit application 
  • Your credit file 
  • History with the lender you are asking for credit 

Data is held securely by credit agencies. It will contain all your history of utility company accounts, credit cards, loans, and any other type of credit. These agencies collect the information and provide it to the lender you are asking for a new loan.

The lender uses all of the data on your credit report to determine whether they are willing to give you a loan. The data helps them to assess the level of risk in loaning money. If your score is low, you may be refused the credit application. You may still be able to get a loan, but it will be at a higher rate of interest to protect the lender.

FriendsCapital has partnered up with checkmyfile – the UK’s only multi-agency credit report – check your credit report.

7 tips to improve your credit score

There are some things you can do to improve your credit rating. You can take action today to help rebuild your credit score. Taking these steps helps to improve your overall score, and so will give you access to better credit deals.

1. Electoral roll register – If you are not on the electoral roll on your current address, then that can affect your credit score: register to vote, either online or by post. Registering to vote is a quick and easy first step to rebuilding your credit.

2. Manage your money properly – If you tend to pay bills late or wait for reminders, you need to stop doing this. Late payments or issues with paying bills is a big red flag to lenders. Make a plan and look at when your bills are due. Have your bills automatically pay by direct debit and make sure you have enough money in the bank to cover them. Consistently paying utility bills, internet, and phone bills prove you can take care of your money. Lenders will see this and be more inclined to offer credit to you.

3. Mistakes on your credit file – You can apply for a copy of your credit file from the agencies that have the information. When you receive your report, check it thoroughly. If there is any activity on there that you don’t recognise, report this immediately. Mistakes on credit files can happen, so check that everything on yours is as it should be.

4. Manage your debt – If you currently have a large amount of debt, you will have to reduce this if possible. A high amount of debt and loan commitments makes lenders less likely to give you more financing. Massive obligations make it more challenging to manage any new ones. Aim to pay off credit cards and other loans as quickly as possible.

5. Check if you are linked to someone else – Holding joint accounts with other people, such as a spouse or family member, can affect your credit. If that person has a bad score, it can change yours too. If possible, clear any joint accounts if you are linked to someone with bad credit.

6. Don’t move too often – If you have moved house regularly, it can affect your credit score. Staying at one address and building a good payment history for a few years will boost your credit. Previous addresses will have to be checked during a loan application, so multiple ones have an adverse effect.

7. Credit utilisation – Your credit utilisation is how much credit you have based on how much you are eligible to borrow. So, your credit score can give you a limit of £5000. If you have £2500 in debt, your credit utilisation is 50%. Using less of your available credit limit is usually seen favourably by banks. Aim to keep your credit commitments to between 25% – 50% of your total credit limit.

Other ways to improve

The above steps will make a significant impact on your credit and give you access to better loan deals. 

But you can also try other things to improve your credit rating. Having no history is just as harmful as a bad one. So, if you have had very little credit in the past, consider taking out a credit card. Credit cards for people with bad credit or no credit are available.

These credit-builder credit cards usually have a small limit. You can use the card to make purchases and pay off the balance each month. The interest rates on these cards are much higher. Because these cards are mainly for people with bad credit, the interest rate reflects this. So, make sure if you do use one of these, you clear the balance each month.

By managing a card like this and successfully clearing the balance, your overall score increases. Good payment history is an indication that you can achieve financial commitments. Lenders will see this and be willing to extend you the credit you need.

Friends Capital help people with all types of credit score

An independent financial provider will be able to give you impartial advice so you can build a good credit score. At Friend’s Capital, we work with all of the top lenders in the UK. If you have bad credit or want to consolidate your debts, we can help. Our experts will be able to find the right product for you. We work with banks that can give you bad credit loans or a debt consolidation loan. Contact Friends Capital today.