You credit rating is used by lenders to assess the risk of you taking out a loan, credit card or mortgage. The likelihood of you paying back the credit on time is largely predicted by your spending history and, the higher your credit score, the more chance that you have of being accepted for any type of borrowing.
So what happens if your credit score is less than perfect because you’ve never borrowed money before and therefore have little or no credit history? Well, fear not. With our top tips you can improve your credit score and improve your chances of securing a mortgage, loan or credit card.
Having minimal credit history – or none at all – makes it hard for lenders to assess your risk. This is particularly true for younger people who might have been living at home and are now thinking about getting a mortgage or finance for a large purchase such as a car. In this situation, it’s a good idea to build up your credit. That doesn’t mean taking out every single credit card on which you can get your hands on, but you will need to show that you’re able to pay off money that you’ve borrowed.
Credit builder card
One way of building credit is by using a credit builder card responsibly to show that you can manage your finances over time. They often have low credit limits but higher interest rates so it’s important to keep up with your repayments, to make sure that it doesn’t negatively impact your score.
Pay on time
It might sound simple but paying on time and repaying at least the minimum will reflect on your credit score. If you can, it’s a good idea to pay over the minimum whenever possible to show responsible financial management.
Low credit utilisation
Keeping your credit utilisation low will help to improve your credit score. This means making sure that you keep your spending under the limit of your credit. For example, if you have a £1,000 limit, only using £300 (or 30%) of this allowance is considered low credit utilisation.
Get on the electoral register
If you haven’t done this already, this is a really easy way to build your credit score. You can register to vote whatever your living situation so check online to make sure that your details are included and up to date on the electoral register.
Avoid multiple credit applications
Making too many applications for finance can dampen your credit score so try to keep these to only what’s necessary. If you’re rejected for credit for any reason, it’s best to look to resolve the situation before attempting to apply to another lender.
Whatever method you choose to improve your score, it’s important to take out credit responsibly and within your budget. If you struggle with repayments, speak to your lender or seek help from Citizens Advice.