Your credit rating, or credit score, is what most lenders will use to determine whether they’ll lend to you. It can affect loan applications, credit cards and mortgages. Keeping on top of your finances and maintaining a good credit score means you’re more likely to be accepted for credit if you need it.
Your credit score is a number between 0 to 999 (depending on the agency you use). This number indicates to lenders how financially reliable you are. Lenders will check this score before agreeing to loan you money, as it shows how likely or able you are to meet repayments. The higher your score, the more likely you are to be offered a loan.
We’ve put together a ten-step guide to help you improve your credit score and increase your chances of being accepted for a loan.
1. Make sure your information is up to date
It’s important that you update your personal details and information with the credit agencies and lenders. Ensure all current debts and credit cards you may have are registered to your current name and address. Start by making a list of your outstanding debts, and work through each lender to confirm your details. This will help ensure your credit score is accurate.
2. Check your credit file
Once you’ve updated your information with the lenders on your list, it’s a good idea to view your credit file. This will remind you of any lenders you forgot to contact and give you a chance to check there are no debts registered in your name that shouldn’t be. Report any debts that are not yours to the lender. Once you’ve done this, you’ll have a definitive list of your debts with the most up-to-date details, and you’ll have notified lenders of any other debts that shouldn’t be there.
3. Register on the electoral roll
Once you’ve updated your address with your lenders, you need to make sure your address is correct on the electoral roll. If you intend to vote, you’ll need to be registered - but making sure you’re registered with your current address can also help to improve your credit score as it demonstrates the kind of stability lenders like.
4. Prioritise your debts
Falling behind on certain loans may have more serious consequences than others, so make sure you’re able to address the most serious first. Priority debts could include bill payments to your utility company, mortgage lender or your landlord. Once you’ve identified your priority debts, focus on paying each of them off. Keep on top of any debts that put your home or wellbeing at risk and aim to pay off your most expensive loan first. Once your top priority loan is paid off, you can move on to the next one, and so on.
5. Opening new accounts
Opening new credit accounts can have a positive impact on your credit score, this will prove to lenders that you are creditworthy if you keep payments up to date on these accounts. Be careful not to open too many as this can be seen as a negative by lenders, especially if some are payday loans.
6. Set up automatic payments
In many cases, the sooner you pay off a repayment, the more significant the improvement to your credit score. Setting up automatic payments can help to keep up this momentum and ensures regular financial commitments are paid off as soon as possible. Plus, it takes the worry out of remembering to make your payments each month.
7. Keep your oldest card active
Many people think they’re better off cutting up their existing credit cards once they’ve been paid off. But you may want to hold on to one – the credit card which you’ve had for the longest. The longer you can demonstrate responsible spending on a credit card, the better the improvement to your credit score.
8. Restore your payment record
Using your credit card to make small purchases every month and paying it back on time is a great way to restore your payment record and boost your credit score. Try using your credit card to fund your food shop, for example, and pay it all off in time. Six months of regular, reliable use of your credit card should see your credit score improve.
9. Stay within your credit limit
Spending more than you earn between paychecks isn’t a good sign to lenders that you can pay back what you owe. Reduce outgoings as much as you can – a debt consolidation loan can reduce the amount you’re paying back by charging a single rate of interest.
10. Don’t borrow up to the limit of your credit cards
Lenders look at the amount of credit you’re using as a proportion of what’s available to you. If you are up to the maximum limit on credit cards this can be seen as a negative.
How long does it take to increase your credit score?
The time it takes to increase your credit score will depend on how low your score currently is and what’s causing it to be so low. Remember, improving your credit score isn’t a quick fix.
Following the steps in this guide will go a long way to improving things, but bear in mind that it will take some time to take control of your financial situation if a bad credit score is affecting you. Once you get on top of your finances, you should start to see your credit score improve.
If you’re struggling to keep track of your existing loans and credit accounts, take a look at our information on debt consolidation loans. This could help you merge your debts into a single, manageable repayment and make it easier for you to take the first steps to improving your credit score.