Like it or not, your credit score plays a major impact throughout our lives. Not only can it affect whether or not you can make major purchases such as getting a car or a house, it can have impacts on areas that you didn't even realise. Renting an apartment or a car, even getting a job can be substantially hindered by a bad credit score. When your score is low, it can feel like an impossibility to get it back on track and moving in the right direction.
The thing to keep in mind is that even the worst of credit situations can be remedied. You also need to realise that your credit score is a history of how you pay bills; it won't be cured overnight just like you didn't get into that bad situation overnight.
But with a little bit of discipline, a budget, and some patience, anyone can turn around their subpar or bad credit score and make it into a respectable score that will help secure better interest rates and loans for the major purchases in life.
1. Know Your Score
If you are looking to improve on your credit score, you can't possibly begin to do that without actually knowing your score, right? Not only should you know your score, you should look at a copy of your credit report to get an idea of where the issues are and what can be done to make improvements to them.
Your credit report is there to tell you where you are doing well and where things need to improve. Even more importantly, a thorough credit report will break down each of the factors that impact credit, show you where you stand, and offer advice as to what you need to do.
Check your report with the three UK credit bureaus:
- Experian
- Equifax
- TransUnion UK
UK credit scores typically range from 0-999 (unlike the US 300-850 scale). Most lenders use Experian's model, though your score may vary slightly between bureaus.
2. Only Use Credit Cards for Emergencies
The ideal way to use a credit card is to have it there for an emergency and then pay off that balance as quickly as you can. You do this for two reasons: payment history and credit utilisation. Paying your bills on time will bode well for your credit score, but keeping your utilisation down is just as important.
When you carry a lot of credit card debt – more than the 30% utilisation rule – it can begin to drag down your overall score. Not only that, you will wind up paying even more in interest fees than you would by paying down your balance each month.
While it might be tempting to use your credit card to make a frivolous purchase, don't do it. Those purchases add up over time and can wind up putting you in a deeper hole than you ever intended to be in.
3. Dispute Any Inaccuracies
While your credit report is there for you to refer to, it also isn't perfect. These reports are based on reports made by your creditors and there are times where your creditors are giving out incorrect information.
Perhaps a creditor didn't update your account and you show a late payment; this can damage your credit score, especially if it takes you a few months to notice. This makes checking your credit report dually important in that you are not only keeping up with what is being said about you, but ensuring that it is correct.
If you see something on your credit report that doesn't look correct, dispute it. There will be a review of your credit report and, if it is proven that the claim is incorrect, it will be removed from your credit report.
4. Try Not to Apply for New Credit Cards
There is a school of thought when it comes to credit utilisation. There are some that feel like offsetting a high ratio can be done through opening a new card. While improving your overall credit line certainly will impact your credit utilisation, there are downsides.
The first is that opening a new card will bring down the average age of credit. The longer your accounts have been open, the better it looks on your credit report. Having new cards opened drags down your cumulative credit age, bringing down your score in the process.
The second issue is that credit card applications are hard inquiries on your credit report. When a hard inquiry is made, it is someone looking into your credit history. Like it or not, this has a negative impact on your credit score.
5. Pay Past Due Balances
Because your payment history makes up such a huge portion of your credit score, it is important to get that back on the right track first. If you have had a missed payment or two, getting those accounts back in good standing is the best idea.
If you have any balances that are past due, it is the best idea to get those current as soon as you can. Even if you miss one payment and go back to normal the following month, that single missed payment can follow you around for a while, both on your credit report and that account.
The best idea with a credit card is to pay off your balance each month. This will ensure that you don't have any rolling balances from month to month. Even if you can't afford to pay off the entire balance that month, make more than the minimum payment.
6. Call Your Creditors
If you have fallen behind on payments or think that there is a realistic possibility that you may do so, the very worst thing that you could do is remain silent and just avoid the problem. Instead of doing that, call your creditors and explain your situation.
Talking to the creditors may result in a more convenient payment arrangement that fits within your budget. After all, creditors don't make money if you don't pay your bills. They may be more willing to accept an alternate payment if you talk to them and explain your situation.
7. Pay Down Your Debt
Nearly all of us have a debt of some kind. Even though some of us are great with credit cards, there are car and home loans to be paid off. These are forms of necessary debt.
If you have a lot of debt, it can reflect negatively on your credit report. Creditors are using the information on your report to determine the risk involved in lending to you. If you have too much debt at one time, the lender may not feel confident that you can meet your monthly payments.
Start trimming down that debt each month. Make payments above the minimum and contribute any extra funds that you may have toward getting that debt paid down. The benefit will be two-fold. The first is that you will have less debt staring you in the face, which is better for your credit report.
8. Leave Your Accounts Open
This was touched on earlier, but part of your credit score is tied to your credit age. You can't change the age of your accounts positively overnight, so keep those accounts open.
Even if you have no outstanding balance on a credit card and don't plan to use it again, keeping it open will help for the betterment of your credit age. Having a longer credit age can give your credit score the boost that it needs.
9. Be Patient
Again, you did not get into this situation overnight and you won't get out of it overnight, either. Be patient, be persistent, and continue to use these methods to improve your score. It might not happen in a day or two, but a couple of months to years can see your score completely transformed.
Don't let impatience or poor decision-making keep you down and keep you from having a good credit score. Anyone can get their score back on track.
10. Speak with a Professional
When all else fails, there are professionals who help people with bad credit for a living. Having a guiding, professional hand can be a tremendous help when trying to get your credit back on track.
Not only that, going it alone may not be the best for you either. If you don't know what to do and don't feel comfortable implementing steps yourself, a professional can help to explain what needs to be done and to keep you on track toward bettering your credit.
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