Post-pandemic financial management is likely to include an element of rebuilding. For many, this will mean rebuilding their credit score. Whether you’ve undergone a period of furlough or been laid off, the pandemic could well have left its mark on your finances.
Let’s take a look at what you can to rebuild your score sooner than you think.
Check your credit score
Checking your current credit score is an important first step. It will let you know where you stand and how much you need to do to rebuild it. Knowing your current score places you in a better position to negotiate interest rates or favourable financial contracts.
In the UK, there are three major credit reference agencies and they each have their own criteria regarding what a ‘good’ credit score is:
Revert back to full payments as soon as possible
If you’ve applied for reduced payments or a payment holiday during the pandemic, it may affect your credit score. While you may have agreed an arrangement with your credit provider, they still have to report the changes to the credit reference agencies as partial or missed payments.
It may not seem fair, but a dwindling credit score isn’t the only consideration here.
For property owners, making such an arrangement might affect their credit score, but it may also save their property. If you are in a position to begin making full payments again, contact your lender to make arrangements as soon as possible.
Bring credit balances down
If you’ve resorted to credit to carry you through the worst of the lockdown, it’s time to bring those balances down. Try to pay more than the minimum required payments to reduce the balance quicker. Credit scores are often affected when credit products are maxed out.
The rule of thumb on credit balances is that your utilisation shouldn’t be more than 20% to 30% of your credit limit. So if your limit is £1,000, aim to be using no more than £200 to £300.
Rebuild your credit score using a credit rebuilder card
If your credit score has dropped below a ‘good’ level, there are still options. Credit cards for bad credit are worth looking into.
Credit cards for bad credit usually have low borrowing limits and high APRs to offset the risk for the lender. These cards are designed to help you rebuild your credit and over time. As you prove your reliability, the lender may reduce the APR or gradually increase your credit limit.
As soon as you’ve reached a satisfactory rating, however, it’s time to move on to a lower-cost product.
Keep your credit provider in the loop
While there’s still a good chance that your credit score will dip as explained above, there are certain credit ‘sins’ that are worse than others. For instance, defaults and county court judgements (CCJs) are major no-nos that can take months or even years to resolve, depending on your ability to pay.
Keeping in contact with your credit provider and being honest about your financial situation may prevent them from taking more serious action. It’s important to stick to any new arrangements in order to rebuild trust.