If you want to take a loan from an institution like a bank, having a good credit score is essential in increasing the chances of being approved and even getting interest rates that are ideal. In this read, we are going to take a look at some of the ways you can boost your credit score.
Prove Where Your Reside
Register on the electoral roll at your current address. It is possible to do this even if you live in a shared house or live at home with your parents.
Make Payments on Time
Paying your accounts in a reliable manner and in full each and every month is an excellent way to show lenders that you are capable of handling credit in a responsible manner. Old and well-managed accounts will more often than not improve your loan score, but you should check the potential impact of unused credit cards.
Build Your Credit History
Having little or no credit history often makes it hard for lending institutions to assess you. This is a pretty common issue with young individuals or those new to the nation. Fortunately, there are several steps you can take to build up your credit history.
Use Your Credit Sparingly
The percentage you use from your credit limit is known as credit utilization. For instance, if you have a limit of £1000 and use £500, your utilisation is 50%. Often, a lower percentage will be taken as a positive sign and will increase your credit score. If possible, try to keep the percentage at 25%.
So, Why Should You Improve Your Credit Score?
When you apply for credit, the institution will calculate your score in order to decide whether you qualify for a loan. This is more often than not based on:
-Your application details
-The information on your credit report
-The data the institution already has on you, if you have been a client before
Keep in mind that each lending institution has a varying way of determining your credit score, and this depends on the information they have access to as well as their lending terms.
Credit reference agencies such as Experian ideally calculate their own versions of your credit score and so, you can have a rough picture of how lending companies will be viewing your score. And do not fret as checking your credit score doesn’t affect it.
What are The Advantages of Improving Your Credit Score?
A higher credit score implies that lending institutions will view you as a lower risk, meaning you are more likely to be approved for a loan. That’s because a high score shows that you have a history of properly managing your credit and making repayments responsibly.
Some of the advantages of improving your credit score include:
- Higher Credit Limit
If you have a good score, you can be able to borrow higher amounts. This can help you make a substantial purchase like buying a home or a car.
- Lower Interest Rates
If lenders think you are lower risk, they will offer you better interest rates on credit cards and loans which makes borrowing cheaper.
- More Offers
Whether it is a home loan, credit card or any other type of loan you are after from a bank or online loans provider, a better credit score means you will have better chances of being approved and thus giving you access to an array of credit providers and offers.
How long does it take to improve credit score? Well, this depends on an array of things, but just know it will not happen instantly. Information regarding things such as your credit cards and new bank account can take up to 3 months to reach the lenders and so, it might take that long to see any substantial changes to your credit score.
Here are a Few Tips for Keeping Your Score Healthy:
- Limit Credit Applications
Frequently applying for credit will only make the lending companies think you are overly dependent on credit and deem you a higher risk. It does not matter what kind of credit you apply for, or how much you want to borrow. Each application will keep a record on your report which lenders have access to. As such, try and space out any credit applications, usually no more than once every 3 months.
- Close Unused Accounts
Having a huge amount of available credit will only make lenders hesitant with the thought that you cannot handle more. As such, you may want to close any credit accounts that you no longer use. You can find more information online on what to do with dormant credit cards.
- Borrow Just What You Can Afford
Getting into debt problems can lead to things such as Individual Voluntary Agreements (IVA), County Court Judgements (CCJ) and even bankruptcy. Such things will stick to your credit report for years and will have a huge impact on your credit score.
- Avoid Delinquent & Defaulted Accounts
Delinquent accounts occur when you are late on payments and defaulted ones when your relationship with the lender has crumbled, usually due to several missed payments. Keep in mind that both of these will put a dent on your credit score.
Disclaimer: This content does not necessarily represent the views of IWB.