Are you struggling to be approved for a new credit card? Or are you concerned that your credit score will prevent you from getting a mortgage? When it comes to borrowing, a good credit score can go a long way. So here are our top tips on how to improve your credit score.
Register for the electoral roll
You may be thinking, ‘What does registering to vote have to do with credit?’ But this is one of the key things to do if you want to improve your credit score. Lenders want to know that you are who you say you are, and that you live where you say you live. The way they check this is to compare the information you give them against the electoral roll. If you aren’t on the electoral roll, then lenders have no way of knowing that you are telling the truth. So it’s best to get yourself registered. You can do this online on the gov.uk website.
Lenders are looking for responsible borrowing behaviour, so make sure that you pay any bills on time. Missed payments for loans, credit cards, utility bills or even mobile phone bills will all impact your credit score. If you can show months or even years of making regular payments, this will go a long way to improving your score.
Build your credit history
Your credit score shows lenders what type of borrower you will be, and whether you are likely to repay the amount they have lent you. If you have no credit history, it makes it hard for the lender to assess what sort of risk you are. If that is the case, then taking out a credit card will be the first step to demonstrating you can be a responsible borrower – as long as you pay your balance off in full each month.
If you are struggling to be accepted for a credit card, consider a credit rebuilder card. This is a credit card designed for those with poor credit scores or no credit history. A credit rebuilder card has lower eligibility requirements than other cards. It also has a low credit limit, which will increase the longer you use the card and demonstrate good borrowing practices such as making your monthly payments and not exceeding your credit limit.
Consider your credit utilisation
Credit rating agencies and lenders look at your credit utilisation – this is, how much credit is available on your credit cards. The general rule is that if you keep your balance below 30% of the credit available, this will not hurt your credit score. However, if your balance creeps up to between 50% and 70% of your credit limit, this could show up as an ‘amber flag’ on your report. If your balance goes beyond 75%, then you are into ‘red flag’ territory. So if you are looking to improve your score, look to get your balance down below that magic 30%.
Check your credit report for mistakes
How many of us have actually seen our credit reports? Before you can go about improving your score, you need to know what information the credit reference agencies hold about you. If you are struggling to be approved for credit, then take a look at your credit report and check for any mistakes. Errors can occur, and one small mistake on your credit file could lead to you having a less than squeaky-clean score. There are several free credit checking services available, such as Credit Karma, which will not only tell you your credit score, but will also alert you if anything out of the ordinary occurs.
Looking for a new credit card?
Great credit card offers are out there — you just need to know where to look! If you’re after the top offers on the market, a great place to start is our list of the top credit cards.
The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.