Your credit score is really important for your finances and your ability to borrow money in the future. It’s really important that you look after your score and are up to date with your credit file. If you have bad or no credit, you can find it difficult to be accepted for any sort of loan. Refused Car Finance have put together a short guide on why your credit score is important and how you can easily increase your score!
Why is my credit score important?
Your credit score is crucial when it comes to your financial future and plays a big part in your ability to borrow money or be accepted for a loan. Your credit score may be checked when applying for a number of things such as mobile phone contracts, car finance, mortgages, insurance, utility services and more. It can also affect that interest rates that you would be offered by potential lenders. People with good credit typically benefit from better interest rates. For example, if you were applying for bad credit car finance, applicants can be seen as more of a risk to lenders so their interest rates may be higher. However, there are many affordable options for different circumstances these days. Your credit score is determined by a number of key factors such as payment history, available credit, length of credit history, number of credit/bank accounts you have and the type of accounts.
Why do I have bad credit?
You may find yourself with bad credit and know where you’ve went wrong, or you may have bad credit and not be sure why! You can have bad credit due to a number of factors. One of those being that you have no credit, which can result in a low credit score. If you haven’t taken out any credit in the past, lenders have no proof that you can be trusted to pay back a loan. One of the most damaging ways to harm your credit score is missing or making late repayments as it shows future lenders you are unable to cope with the debt you have. Being declared bankrupt, entering into an Individual Voluntary Arrangement (IVA) or having a County Court Judgement (CCJ) can also have a negative effect on your credit score. Even making the minimum repayment on your credit card each month can harm your score as it suggests you are struggling to pay back your debts.
How can I improve my credit score?
Like anything that has to be built, it takes time and effort. There are no quick fixes for credit scores and it’s all about proving that you can be trusted to pay back money you owe on time and in full. However, there are a few ways which you may not of first thought when trying to increase your credit score.
- Check your credit file
One of the first things you should do is check your credit file. This lets you understand where you are on the credit scale, your financial history and what is recorded on your file. You can check your file online for free using Equifax or Credit Karma. When checking your file, you should make sure all your information is up to date and there are no mistakes on your file. Even having an incorrect address can affect your credit score. You should also keep an eye out for any fraudulent activity on your file.
- Electoral Roll
One of the easiest ways to increase your credit score is to register on the electoral roll. Even if you don’t care about voting in the UK, it’s really useful to potential lenders. The electoral roll enables lenders to verify you are who you say you are and your address history. Lenders tend to favour people who don’t move around as much as they are more settled.
- Don’t miss or make late repayments
This one can be tricky, especially if you have had trouble repaying debts or loans in the past. However, it can be one of the most effective ways to increase your credit score. Lenders ultimately want to see they can trust you to pay back their money. Even 3 months of showing you can make all your payments on time and in full can strengthen your application.
- Close any unused accounts
Potential lenders sometimes take into account the amount of credit you have available to you. If you have credit cards, store cards, direct debits or mobile phone contacts that are still active/open that you don’t use any more, it is recommended that you close these accounts.
- Remove financial partners you don’t need
If you have taken out credit as part of a joint application in the past you may find yourself financially linked to a partner. If you no longer need them as part of your credit history, its best to disassociate yourself. If they have a bad or low credit score, this could be negatively impacting yours.
- Reduce the number of applications for finance
Making multiple applications for credit or a loan in a short space of time can negatively impact your credit score. A hard search on your credit file leaves a note that it has been checked and multiple checks can indicate to lenders that you are desperate for credit.