How to improve your credit score
If you’re intending to apply for credit – for whatever reason – then it’s imperative that you have a good credit score since lenders will use this information to decide whether or not you’re ‘creditworthy’.
What is a ‘credit score’?
Your credit score is made up of certain information retained by credit reference agencies, such as Experian and Equifax.
If you apply for credit, the lender will look at your credit score to ascertain whether you have an adverse or poor credit rating – for example, if you’ve defaulted on previous arrangements with other lenders. If they identify this from your credit record then they’re unlikely to extend credit to you; hence why it’s really important to keep this information up-to-date.
What does a poor credit score mean?
A poor credit score will tell the lender that you’re not a responsible borrower. It might also mean that you have a County Court Judgment registered against you. These stay on record for a period of six years and can make it extremely difficult for you to obtain credit during that time.
If you get a County Court Judgment issued in your name then, if you’re able to, make payment in full within 28 days and then apply for a Certificate of Satisfaction from the Court. This means that the CCJ will be removed from your record and won’t have an adverse effect on your credit file.
If you’ve already got a poor credit score then you might well be limited in terms of who will lend to you (although remember that many lenders may simply decline your application outright). That said, some lenders might offer credit but will only do so in return for a much higher interest rate and may also ask for a guarantor in case you then default on the arrangement.
How can you improve your credit score?
There are various ways to improve your credit score for example:
- By registering on the electoral roll. This will prove to your lender that you have a regular home address and generally speaking, the longer you’ve lived there, the better.
- If you’re financially associated with someone else (such as a partner or spouse) then the lender will consider this information too. This usually happens when you take out a joint product – for example, a loan or a mortgage. Remember, if the person you’re financially associated with defaults on any arrangements then this could have a negative impact on you too.
- If you’re not currently responsible for the repayment of any utility bills then it’s always a good idea to take on at least one since this will prove to the lender that you’re able to make repayments on time. Sometimes having ‘no’ credit history is just as bad as having a ‘poor’ credit history so the more you can do to establish a working credit history, the better.
If you enter into any type of repayment plan then it’s imperative to keep it up-to-date. You can regularly review your credit score by joining Experian and if you notice anything unusual you should enquire about it straight away.
Unfortunately, there are never any guarantees in terms of interest rates being increased so always ensure you understand exactly what you’re going into and don’t be afraid to ask questions before you commit to anything.
Fortunately, credit card companies have now made certain pledges to protect the consumer which include:
- Not to increase your credit card rate within the first 12 months of taking it out (provided that you don’t breach the account’s terms and conditions of business). Beyond that, however, the rate can only be increased once every six months.
- To inform you if your rate is due to be increased. If you get notification of this, always be sure to check your credit rating in case they’ve based this decision on some recent activity on your credit file which you might not be aware of.
- Giving you at least 30 days’ notice of any increase in their interest rate which provides you with the opportunity to repay it beforehand.
- Not to increase your interest rate if you are suffering financial difficulty. So if you’ve fallen behind with your repayments then be sure to seek advice at the soonest opportunity. You can either talk with your lender directly or speak with one of the many debt counselling agencies (details of whom can be obtained from your lender upon request).
If you want further advice on how to improve your credit score then don’t be afraid to ask and/or speak with the credit reference agencies directly. Suffice it to say, you want to ensure that your credit rating stays strong, regardless of whether you’re planning to lend money either now or at some point in the future.