The new year represents more than just the beginning of another calendar year. It’s a chance to start afresh, introduce change, and make improvements to our lives. Along with resolutions like getting fitter and eating more healthily, many of us will focus on improving our finances.
What better place to start than with one of the most important metrics of your financial life: your credit score? If you have made a New Year’s resolution to improve your credit score, experts at car finance company Zuto have 10 tips to help you do just that.
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Why try to improve your credit score?
Your credit score is a key indicator of your financial health. It shows how reliable you are when it comes to borrowing and repaying money.
If you plan on buying a home in 2022, a higher credit score could help you not only qualify for a mortgage but also access an affordable interest rate. Similarly, if you need to take out a car loan, your credit score will play a big role in determining the amount of interest you are charged.
A good credit score could also help you qualify for the best credit card offers available.
How can you improve your credit score in 2022?
The good news is that improving your credit score isn’t too difficult. Here are 10 simple and practical tips from Zuto to help boost your score in 2022.
1. Get on the electoral register
The electoral register is a list of all eligible voters in the UK. Being on the electoral roll gives lenders a way to confirm your identity and address. It will help to improve your credit score as a result.
2. Make payments on time
Pay your utility bills and other due payments, such as credit cards and loans, on time. It will show lenders that you are a reliable borrower and that you are capable of handling credit responsibly.
3. Keep your credit utilisation ratio low
Your credit utilisation ratio is the percentage of your total available credit that you are currently using. Keeping your credit utilisation ratio under 30% is usually seen as a positive by many lenders and can help improve your credit score. So, if your credit card has a £1,000 credit limit, aim to keep your borrowing below £300.
4. Keep credit applications to a minimum
Avoid making a lot of credit applications at once or in a short space of time, as this makes lenders think that you are desperate to access credit.
Remember that any full application will show up as a hard check on your credit report, which could negatively affect your score.
5. Use soft searches to check your eligibility for credit
Before you apply for any credit, use a soft search facility to assess your eligibility. While hard searches are shown on your credit report, soft searches are not, so they won’t impact your credit score.
6. Use your overdraft sparingly
An overdraft will appear on your credit report as debt, so use it wisely. That doesn’t mean you should never use it. If you can stay within your agreed limit, it may demonstrate to lenders that you are a dependable borrower.
7. Cancel unused credit and store cards
Although old, well-managed credit accounts can help improve your credit score, having an account that is no longer in use can have the opposite effect.
Lenders may look unfavourably at your application if you have too much available credit you are not using. So consider closing old credit accounts that you haven’t used in a long time.
8. Avoid payday loans
Payday loans can sometimes help you get out of a financial bind. But if you want your credit score in good shape, try to avoid them as much as possible. Their interest can be enormous, making them very expensive. Keep in mind that each time you fail to repay a loan on time, the amount owed grows exponentially. This can result in even more debt.
9. Financially delink
If you end a relationship with someone with bad credit, ensure that you also financially delink from them so as not to have their poor credit affect yours. That means closing joint accounts and repaying joint loans. You can also ask for a notice of disassociation from credit reference agencies.
10. Check your credit report annually
Make it a habit to check your credit report once a year, or before any new credit application. Credit reports contain a large amount of data, and it’s entirely possible that an error could appear from time to time. By reviewing your report, you can take steps to correct any errors and ensure that they do not affect any future credit applications.
A higher credit score could open the door to a number of new and exciting financial opportunities in 2022. Put these tips into practice to improve your credit score this year.