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Credit scores and credit reports? What’s the big fuss about? Unfortunately because of noisy TV commercials and radio adverts, the very topic may have you running away from, rather than facing an important aspect of your financial portfolio.
In today’s day and age, your credit score is your greatest financial asset. A great credit score can be used as weapons in your financial arsenal when it comes to saving money and getting the best deals and rates on services, over the course of your life.
Just 100 points in a credit score can mean the difference between hundreds and thousands of pounds and time wasted to higher interest rates and fees.
Representative Example:
Two homeowners are buying a home and need a £200,000 home loan. Borrower A, with a credit score of 760, qualifies for a rate of around 4%, where the monthly payment, before taxes and insurance is approximate £900.
Borrower B, with a credit score of 660, qualifies for a rate around 5%, where the monthly payment is approximately £1000.
**A credit score difference of 100 points can cost borrower B £100 more per month in interest fees. In addition, after 5 years, Borrower B will pay about £7,000 more than Borrower A.
What that out of the way, let’s look at how you can improve your credit score. Sometimes the easiest things appear to be strangely difficult. We break it down in 5 tips for you to improve you credit score.
# 1 Prove where you live.
Register on the electoral roll at your current address – you can do this even if you’re in shared accommodation or living at home with your parents. You can register to vote online or by post.
# 2 Build your credit history.
Having little or no credit history can make it difficult for companies to assess you, and your credit score may be lower as a result. This is a common problem for young people and people who are new to the country. Luckily, there are some steps you may be able to take to build up your credit history.
# 3 Setup Payment Reminders
Making your credit payments on time is one of the biggest contributing factors to your credit scores. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. You could also consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this only makes the minimum payment on your credit cards and does not help instil a sense of money management.
# 4 Reduce the Amount of Debt You Owe –
This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. Use your credit report to make a list of all of your accounts and then go online or check recent statements to determine how much you owe on each account and what interest rate they are charging you.
Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on your other accounts. For example, if you have a limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%. Usually, a lower percentage will be seen positively by companies, and will increase your score as a result. If possible, try and keep your credit utilisation at 25%.
# 5 Check your credit reports are accurate
Lastly, check your credit reports. A 2016 study from the Financial Conduct Authority (FCA) found that 1 in 5 consumers had an error on at least one of their credit reports. A follow-up study in 2017 found that those who reported an unresolved error on one of their reports believe that at least one piece of disputed information is still inaccurate. If you find an error on all three credit reports, you’ll have to dispute it separately with each credit bureau, as they’re run separately from one another. You can dispute these errors on your own for free, or you could consider hiring a reputable credit repair company or credit counsellor to help.
Final Thoughts
Following these tips will not only save you money but also teach you the valuable skills necessary to maintain a good credit score in your future. If you have bad credit, don’t give up on credit entirely. Instead, be responsible and stay educated about your accounts and scores so you can successfully handle your own finances and find a credit repair plan that works well for your situation.
