Having a good credit score is essential to increase your chances of banks lending you money. No one wants to go through the application process of borrowing money only to be rejected due to a poor credit score.
According to a study carried out by Bankrate, 33% of adults aged 24-39 were refused a credit card, loan, or mortgage due to a low credit score.Source: YouGov study on behalf of Bankrate
If you’ve been denied a mortgage, loan, bank card, or you’ve checked your credit score and it needs improving, we’re here to help.
What is a credit score?
A credit score is a number that represents the chances of you paying borrowed money back to a lender. For lenders to determine whether or not you’re deemed “safe” to borrow, a credit score plays an important role.
While lenders are evaluating your credit score, they’ll also have access to your credit history, past transactions, and much more. By showing lenders this type of information, they’re able to make safer judgments to lending people money.
Invariably, the higher your credit score, the more likely you’re going to be accepted for a loan. A good score can help you get the following:
- Loans, mortgages
- Get a credit card
- Car financing
- Mobile phone contracts
- Property rentals
- A bank account
Tips For Improving Your Credit Score
Below we talk about how to improve your credit score in a five simple steps.
1. Pay your bills on time
If you can, you should pay all of your bills on time as this can have a massive negative effect on your account. This isn’t just for loans, but also bills such as your phone, internet, etc.
2. Get registered on the electoral roll
If you have not signed up for the electoral roll and aren’t registered to vote, this will also negatively affect your credit score. Your credit score will also drop if you change your address and don’t update your file! I know this from first-hand experience when I moved a few years back. I forgot to update my details and only noticed when my credit score dropped by 300 points.
To sign up to your electoral roll, click here.
3. Control your debt
If you have a high amount of debt or have many existing loans/ credit cards, this will affect your credit score. Therefore you should look for ways to get out of debt as fast as possible. One simple way to get on the right track if creating a budget.
If you are more competitive, look at it as a challenge. A good challenge to think about is the snowball debt challenge. Start with the smallest debt first and work your way up to the more expensive ones.
4. Check for mistakes on your credit file
If you believe you have a perfect credit score, it might be worth double-checking your files for errors. As mentioned above, this happened to me when I forgot to update my credit file and my score dropped significantly.
5. See if you’re linked with another person
Having a joint account with a family member, spouse, or even a friend could affect your credit rating. If the linked individual has a poor credit score, this could also affect you. So, if you do open an account with someone else, make sure you know their credit history!
If you can, try to implement the above and monitor the process. By executing this flawlessly, your credit score will most definitely increase.
Why improve your credit score
As mentioned, a credit score is vital when you want to borrow money. When you apply for a loan, companies will look at the following metrics:
- Your credit report
- Application details
- Data they already have on you (if you’ve been their customer before)
Once they’ve evaluated this information, they’ll then make the final decision on whether or not it’s safe to lend you the money. In this situation, the higher your credit score, the greater chance of you receiving your loan or credit.
If you have a low credit score and get accepted for your loan or credit card, you will likely be charged a higher interest rate and APR.
James Banerjee is a Senior Account Manager who graduated from the University of Kent in 2014. He works in SEO on clients such as HSBC UK and Nestle and he has a keen interest in personal finances and money-saving advice.