A credit score is given to someone based on their finances and specifically, a person’s ability to repay debts. Your personal information, credit history and enquirers into your credit history can all contribute to your score. If you have a poor credit history and want to build your credit score in order to get the best interest rates, pay lower charges on credit cards and be seen generally as someone who is financially trustworthy, follow these 10 steps!
Pay Off Repayments As Agreed
When you are unable to pay any due payments on time, this will affect your credit score. It is essential that you pay back debt as agreed and you pay other commitments on time. Credit scores are based upon whether you are able to borrow money and be reliable enough to pay it back when it is expected, so proving you can do this is one of the best ways to boost your credit score.
Have Your Name on Bills
A simple way to show lenders that you are reliable is to pay bills on time. This could be rent, phone contracts, internet, utility bills and insurance. If you’re in a house share and one person is responsible for paying the bills, they will be getting all of the credit, literally!
So, discuss with your housemates about sharing out the bills in each of your names to help improve your credit score. This isn’t unreasonable, as you are contributing, so you should gain some of the credit.
Register To Vote
It can be extremely difficult to get a good credit score or to borrow significant amounts of money without being on the electoral register. This acts as a strong reference to confirm that your name and address are correct. This can take a matter of minutes but will make a big difference when it comes to improving your credit rating.
Apply For A Credit Card
Another way to build your credit score is to apply for a credit card. Some companies are particular about who is eligible, so this might not be possible for everyone. Yet, if you can get a credit card, it is one of the best ways to build your credit score. Dedicate a particular outgoing each month and purchase that thing using your credit card. This could be petrol, food shops or holiday payments. Then, at the end of the month, simply pay back the money you have spent.
It is really important to note that you should only take a credit card out if you are financially stable and know you can pay back what you have borrowed in full quickly. Otherwise, it will be terrible for your credit score. If you are stable and are wanting to build your score, taking out a credit card can be a great option.
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Reduce Credit Utilisation to 25%
Linked to the last point, it is advisable to try and limit your credit card use to around 25%. If you have a credit card with a limit of £1000, try not to spend more than £250 before you pay it back. A lower percentage is seen as positive by lenders, so try to limit spending and always pay it back on time! Little and often is the key here.
Avoid Regular Credit Applications
Every time you apply for some kind of credit, a hard credit check is completed on you which can have an impact on your credit score when completed too often. So, make sure you spend time researching which credit card is right for you before jumping in. Building credit with things like credit cards can be great so don’t avoid it, but just make sure that you limit the amount of applications you complete to make the process of building credit beneficial, rather than detrimental, to your score.
Avoid Payday Loans
Payday loans often lead to people getting caught up in a cycle of debt, so they are frowned upon by lenders. This can impact your credit score and can impact what lenders are prepared to offer you. The interest rates on payday loans are truly terrifying, so the risks should be carefully considered before even thinking about taking one out.
Stay Settled In One Place
Another thing that could impact your credit score is not staying settled in one property. If you move around a lot, lenders may see this as an indication of instability. Where possible, try to stay in one property for as long as possible in order to give your score a boost. When your next lease review comes around, think twice about moving!
e to carefully look over your credit report, as if there is anything inaccurate such as a closed account which has been recorded as open, this could affect your score. Regularly check your report to make sure everything is in order.
Look At Negative Associations
If you have a joint bank account with someone, or have in the last 6 years, then your credit information will be linked to theirs. This means that if their credit score is poor, then yours will be too. Additionally, if their credit rating is better than yours, then this won’t positively impact your score. Make sure that if you do have any kind of joint account, even if it is just a shared bills account for a houseshare, you consider disassociation if it is reflecting badly on you.
Summary
So, there you have it! 10 ways to build your credit score. Building credit is essential when it comes to borrowing, including to buy a house, so it is important that you work towards building a good score. Here is a quick summary of the main points so you can create a checklist of your own!
- Pay Off Repayments As Agreed
- Have Your Name On Bills
- Register To Vote
- Apply For A Credit Card
- Reduce Credit Utilisation to 25%
- Avoid Regular Credit Applications
- Avoid Payday Loans
- Stay Settled In One Place
- Look Out For Mistakes On Your Credit Report
- Look At Negative Associations
This will take time, but following these simple steps should make the process simple.
