We all have financial goals: a new car, a new house, even just getting a credit card to make short-term goals a reality. Whatever you have your heart set on, your credit score will come into play when you fill out that application.
It’s surprising then that nearly two-thirds of UK adults don’t know their credit score, and that poor credit scores have deterred one in 10 from applying for a mortgage.
It’s an unavoidable fact that credit scores matter to lenders, so it’s important to pay attention to yours, and that you know how to improve it.
Top tips for boosting your credit rating
The first step to improving your credit score is to know what it is and understand how it’s set. All the leading credit rating agencies (CRAs) base their credit scores on a similar set of criteria and by assessing your credit history – AKA how you’ve managed your money over the last few years.
There’s no such thing as a universal credit score: every lender has its own system in place to decide whether or not to accept you as a customer.
The important thing is that a higher credit score means that you’re seen as lower risk. It’s easy to check your credit score online, and once you know what it is, you can take steps to increase it (if required).
- Make payments on time: Missed payments on loans, credit cards, utility and mobile phone bills can have a knock-on effect on your credit rating.
- Stay within your credit limit: Going over it could cost more in charges and can make you look unreliable to lenders, even if you clear the balance by the time payday comes around.
- Don’t let credit cards gather dust: A well-managed credit card with regular payments can actually help improve your credit rating.
- Avoid taking out cash on your credit card: It can look like you have cashflow problems and negatively affect your score. Use your debit card for cash withdrawals to keep your credit rating intact.
- Pay more than the minimum, if possible: Increasing your monthly repayments even by a small amount can help you pay less interest, wipe out your debt quicker, and help boost your credit rating.
- Register to vote: Actually voting won’t affect your credit score, but being registered helps credit reference agencies find your current address.
- Ask for old financial connections to be removed from your credit history: This could be exes or former housemates that you had joint accounts with. If they have a poor credit score, they could bring yours down too.
More than two-thirds of adults mistakenly believe checking their credit score too often can negatively affect it, but you have the legal right to check your credit report for free and should know what it is.
That said, only aim for one hard credit score check every six months. ‘Soft checks’ don’t leave a mark on your file, but a ‘hard check’ could affect your credit score.
There are tangible benefits to staying on top of your credit score. It can mean access to a wider range of products and services including loans, credit cards and mortgages. You could also enjoy better interest rates and more generous credit limits.
The world of finance is complex to say the least, but knowing what affects your credit score and how to improve it is a great step towards unravelling some of that complexity.
At Loqbox, we believe everyone should be able to enjoy a happier, healthier relationship with money. Getting your credit score up and feeling good about being one step closer to your financial goals is a great way to improve your financial – and overall – wellbeing.
By Gregor Mowat, Co-CEO and Co-Founder of Loqbox
