Establishing a healthy credit score has many benefits - but when you have lots of financial commitments to keep track of, maintaining it can be a challenge.
You should bear in mind that it’s not uncommon for your credit score to fluctuate depending on your financial behaviour. In fact, it’s quite normal. But there are a number of different things you can try to build, improve and maintain a healthy credit score over time.
If you’ve recently used a credit referencing agency to find out your credit score and it’s lower than you expected – there are a number of ways you can look to improve it.
Perhaps your credit score is low because you don't have a lot of credit history in the first place?
Everybody needs to start somewhere - and there are a couple of simple things you could try straight away to get your credit score moving in the right direction.
A simple way to get started is by making sure you’re on the electoral roll (if you aren’t already).
It helps lenders verify your details and check that you are who you say you are. It’s also something you should check if you’ve recently changed address.
You can register to vote by post or online and update your voter registration records in just a few simple steps.
It’s a good idea to start building a track record of meeting monthly repayments. For example, making sure all of your bills, direct debits or credit card repayments are paid in full and on time monthly will help to show lenders that you’re a reliable borrower and likely to be able to keep up with your repayments.
For some, meeting monthly repayments has been more difficult during the Coronavirus pandemic. If you’ve taken a payment deferral for a form of credit such as a mortgage, loan or credit card, Which? have offered some guidance on how this might be reflected on your credit report.
If you’ve already got an established credit background, but you’re looking to make some improvements to the way in which you handle your finances - you might want to consider the following:
If you have a certain amount of debt on your record, then lenders will take this into account when assessing your affordability. It’s not uncommon to have unsecured debts - but if they start racking up, your credit score can be negatively affected.
If you’re looking to improve your credit score, then you’ll need to start managing your debts - with a view to paying them all off. Whether that’s through debt consolidation or another means - the sooner you can sort out your debts, the better your credit rating is likely to be in the long run.
This almost goes without saying, but if you can get into the good habit of making repayments on time - you stand a better chance of improving and maintaining your credit score. It’s important to bear in mind that even just one missed payment could have an impact, so it’s important to stay on top of your bills.
If you’ve been financially impacted by Covid-19, and as a result had to request a payment defferral, this won’t impact your credit file with Credit Reference Agencies. However, it is important to note that lenders may take it into account using other sources of information when making future lending decisions. If you have any queries about payment deferrals and how they impact your credit report, speak to your lender.
Credit utilisation is the amount of ‘credit’ borrowed or used by one person at any given time. Lenders can find out your credit utilisation when you apply for credit. A credit check will soon reveal the amount of credit you have - and this will naturally have a bearing on your credit score.
Therefore, making an effort to minimise your credit utilisation is another method you could explore when it comes to improving your credit score.
Once you’ve built up your credit score, you should look to try to retain it over a long period of time - provided you keep consistently displaying the same good habits!
Limiting the amount of credit you apply for can help to reduce the amount of hard credit searches on your file.
If you apply for too much credit in a short space of time, it can give lenders the impression that you’re too keen to borrow and cause them to question your financial situation.
This can be applied to any scenario - whether that’s building, improving or maintaining a good credit score.
Just because you’ve built up a solid track record of making repayments, it doesn’t always mean you can apply for a larger amount of credit and still manage it the same way.
It’s important to make sure you avoid borrowing more than you can afford
When applying for credit - try and utilise soft searches when obtaining a quotation rather than hard searches where possible.
A soft search is a type of credit check that allows the lender to look at your credit report without leaving footprints visible to other lenders (however you can still see them). Typically, some lenders will offer a soft search when you apply for a credit quotation to show how likely you are to be approved for credit. A hard search will only be carried out if you decide to proceed with your application.
Too many hard credit checks on your credit file can damage your credit score as it shows lenders that you are trying to get credit from different lenders. This could cause the lender to question your financial situation as you could have been declined for credit for example and searched for an alternative.
There are a number of reasons why your credit score might go down . However, the main reasons may include:
Before opening a new line of credit, a lender will carry out a hard credit check on your report, leaving a footprint visible to other lenders. A new line of credit could affect your credit score in the short term but as long as you’re able to make the regular payments in full and on time - your credit score should soon recover. However, if you try to open too many lines of credit over a small period, it won’t give your credit score time to recover.
To avoid unnecessary searches, try to only apply for credit when you need and can afford it, and try to focus on credit that you have a good chance of getting approved for. Alternatively, you can choose to use a provider who can carry out a soft search. This will help you to find out the likelihood of being accepted for credit before you apply without impacting your credit rating so you can shop around for the right option for you.
You should always try and check that the information on your credit report is up to date to ensure it accurately reflects your current circumstances. Your credit report has a massive influence on your credit score and therefore your ability to get credit in general. Inaccurate information could leave you with a lower credit score than you should have.
If you suspect this to be the case, your first port of call is to access and check your credit report via one of the many credit reference agencies available (you can usually get it for free). They all have procedures in place to deal with complaints regarding any inaccurate information and are willing to make changes if needed - so it’s definitely worth a check!
When it comes to maintaining your credit score - stability and reliability are really important. Lenders can measure this by checking you’ve managed to make all your required payments on time. Even just one missed or late payment can negatively impact your credit score so it’s important to keep on track with your payments.
Your credit score is always under scrutiny, so it’s always best to get in the habit of making your payments in full and on time every month.
If you want to learn more reasons that may cause your credit score to go down read our article here.
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