How do you improve your credit score? After all your credit score is one of your biggest assets and crucial when applying for credit.
This week, I am sharing 10 ways to improve your credit score fast.
1 – Check your report regularly
Last week, I gave you links to where you can access your credit report for all 3 of the credit reference agencies. Now that you have that resource, make it a priority to stay abreast of your report.
Schedule 5 minutes every month to review any updates and changes. You should get notified of any changes as and when they happen. The more you know the better informed you are and the more prepared you can be.
2 – Register on the electoral roll
We know the electoral roll is a source of data and the mere fact of you being registered can be both a positive and negative, it, therefore, makes absolute sense to register.
Whenever you apply for credit a lender wants to know that you’ve put down roots and you’re not going to disappear. Think of it this way, would lend money to someone you couldn’t locate?
3 – Never miss a payment or have late payments
Your credit report is a digital image of your financial conduct. Missing payments or having late payments is a big red flag for any lender. They send the message that you can’t be trusted and will make the lending expensive IF granted.
As such your money management has to be on point. In weeks 2 and 3 we focussed on the basics behind money management, those fundamental are applicable here.
Unfortunately, or fortunately depending on your outlook, lenders exist to make a profit. It goes against their business model to lend money if the risk of default is high
4 – Pay attention to your partner
A financial link can exist when you are either made to another person, share a home, have applied for credit with another person – for example, a mortgage or a guarantor loan.
A financial link will appear on your credit report and will remain indefinitely, even after the account is settled or closed. This means that unless you specifically request for the financial link to be removed your ex-partners, brothers or cousins poor financial habits can affect your creditworthiness without you even realising.
It is worth noting, sometimes a lender or credit reference agency will not allow for a financial link to be removed if they believe a link is still in place – this is usually in the form of a joint bank account or mortgage that hasn’t yet been fully paid off.
For this reason, it’s important to seriously consider who you have a financial link with and make it a priority to have an open dialogue about how you both improve your credit score.
5 – Minimize your credit application
Multiple credit applications within a short period of time is a No No. There are many red flags you can present to a lender and this is one of the biggest ones out there.
Like I said before, the more you know the better informed you are and the more prepared you can be. If you are going to apply for credit, you need to know what’s on your report first. You wouldn’t walk into an exam without studying first, the same applies here.
Do your homework and be prepared, it will save you time, effort and apprehension.
6 – Use credit builder cards
Yes, I’m encouraging the use of a credit card, but with the right mindset and with an air of caution.
If you get one of these cards, you are going to be paying a higher interest rate. You must be disciplined.
A common mistake people make when taking out a credit builder card is that they max out the card and begin making the minimum payments. BIG NO NO. The best thing you could do here is, use a small amount each month and pay the balance off in full every month. This will demonstrate self-control, good financial management and the ability to honour a financial commitment by making your monthly payments on time.
DO NOT, max out the card and make the minimum payments. It will only cause more damage.
7 – Avoid cash advances on your credit card
This is an expensive way of using cash but it’s also a red flag to lender. It sends the message of poor money management and possible financial difficulty.
Remember, how you use your credit cards is part of the data lenders use when assessing you.
8 – Avoid Payday Loans
Another expensive way of using cash. Interest rates are often astronomical which in turns makes it extremely difficult to escape from.
For some reason, payday loans have been perceived as a way of increasing your credit score, this couldn’t be farther from the truth. Almost all the lenders will view the use of payday loans as a negative and another BIG RED FLAG. Again, it raises the question of financial difficulties and poor money management.
9 – Challenge any derogatories on your credit report
If you’ve checked your credit report and you spot anything on there that doesn’t look right, challenge it.
I’ve done this in the past and it works. Adding a simple notice of correction on to your reports means that any derogatory notes or notification are looked at manually by a person. It could be the difference between getting an agreement in principle for your dream home or not.
To add a notice of correction onto your credit report contact the Credit Reference Agency or alternatively the Financial Ombudsman as a last resort.
10 – Apply with soft searches first
Most lenders now do soft searches to pre-qualify customers for any borrowing. A soft search doesn’t leave any record of a search on your credit report.
For this reason, it makes absolute sense to do a soft search before you make any credit applications. That way you will know if the decision will be a yes or a no. With that said, note that an indicative yes from a soft search could still result in a no if you are unable to provide relevant documents or, for example, you fail an affordability test during the application process.
11 – Reduce your revolving credit to less than 30%
This tips should help you improve your credit score in 30 days as your credit score updates.
Revolving credit will be things like your credit cards or store cards. These are open-ended facilities that have no end date. Typically when you use over 50 or 60% of your credit facility you will see a drop in your credit score for high utilisation. Reducing your credit utilisation to 30% or less should see your credit score pick up in the short term.
A simple example. If your credit card limit is for a £1,000 you’d want to bring the amount you owe or have outstanding be less than 30% or £300.
Let me know which of these tips you found most useful and which you’re likely to implement.
Learn more about how your credit score is compiled HERE.
These are my 10 tips to improve your credit score fast, to listen to this on the podcast HERE