5 Simple Ways to Improve Your Credit Score
If you have a low credit score, you’ll probably know that this can make taking out credit more difficult. This can be true of anything from a mortgage to a payday loan. And as most information stays on your credit file for around six years, any defaults and late payments can impact your chances of getting a loan for some time.
But don’t give up before you start – there are ways to boost your credit score! Unfortunately not all of these are instant fixes, but they are all pretty straightforward. Check out our five tips below, to start rebuilding your credit score!
1. Check Your Credit File
Before you do anything else, it’s a good idea to get a better understanding of your starting point. To do this, you’ll need to see a copy of your credit file, which is also referred to as a credit report. There are three main credit reference agencies in the UK, all of which record details on your credit file. These are Experian, Equifax and TransUnion – you can request a copy of your credit report from all three credit bureaus for a small fee.
It’s important not to get confused between your credit file and your credit score – although they are linked, they’re not the same thing. Your credit report contains details such as any loans and credit cards you’ve taken out previously, as well as whether you made the repayments towards these credit commitments on time. You’ll also find recurring payments like your utility bills and your mobile phone contract on your credit file.
Your credit score is a number calculated from the information on your credit file. Your score will then fall into a few categories, from very poor to excellent. Many lenders will use this score to make a loan decision.
When it comes to improving your credit score, you may be able to do this by checking for any mistakes on your credit report. Whether it’s an old address listed as your current one or a loan you don’t remember taking out, these things could be impacting your credit score. If any information is incorrect, you can get in touch with the credit reference agency to get it amended.
2. Repay Older Debts
Your credit score is not just about recent or current loans, it will also depend on credit you have taken out years ago. Although lenders are unable to take legal proceedings if you got the several years before, this doesn’t mean the balance disappears, nor will the negative marks on your credit report.
You may not be able to settle the loan in full, especially if it’s a big balance, but you should be able to set up some sort of repayment plan with the creditor. Even if you can only afford small instalments each month, this will be reported on your credit file as the balance decreasing, and that you’ve set up an arrangement rather than leaving the account in arrears. Other lenders may then be more likely to lend to you, as they’ll see you’re taking responsibility for your debts.
3. Contact Your Creditors
A lot of people find it difficult to contact their creditors, as it can often be embarrassing or hard to discuss your finances. But pretty much every lender, once they gain a better understanding of your situation, will be able to work with you to put a suitable arrangement in place. So before contacting your creditors, it’s a good idea to go through your budget, and work out what you can comfortably afford to repay towards the debt.
If the loan has been outstanding for some time, you may even be able to discuss a reduced settlement with your creditors. Small balances and extenuating circumstances could also mean lenders will consider writing off the balance as a gesture of goodwill. If you don’t speak to your creditors, you’ll have no way of knowing what they can do to help!
And if you’d rather not speak with your creditors over the phone, many now offer live chat services, or have an email address you can use to contact them. It may take slightly longer to resolve the issue, but is a great option for people who get anxious talking over the phone.
4. Check Your Credit Footprint
You may not realise that having no credit commitments listed on your credit report can be almost as damaging to your credit score as negative marks like late payments. If you haven’t taken out much credit previously, lenders are unable to determine how you manage your money. Essentially, you need to prove that you can repay debt.
This can put some people into a Catch-22 situation – it’s hard to borrow money without a credit history, but you can’t build up a credit history without taking out credit! It can therefore be a good idea to look into the credit options available to you, and decide which is the best choice for you.
It’s sensible to your time with this decision – you don’t want to end up borrowing something you can’t easily afford to repay, as this could leave you in a worse position than where you started. It may even be worth discussing your finances with an independent third party, to explore the best options.
5. Make Repayments on Time
So we’ve discussed older debt, but what about loans and credit cards you’ve recently taken out? As mentioned above, late payments can damage your credit score, and lenders will be concerned if your recent credit history shows lots of late payments.
Some people simply have trouble remembering when payments are due, so end up making them late even if they have the money available! If this is the case, you may wish to consider setting up a standing order or direct debit, so that the payments go out automatically.
It’s amazing how much of a difference even a few months of repaying on time can make to your credit score. So if you’re really keen to improve your score, it’s good to be more conscious of your loan repayments, and perhaps start budgeting to ensure that you can always pay back on time.