In this week's millennial money episode, I ask financial expert Damien Fahy about credit scores and he gives 6 top tips on how to improve your credit score.
How can I improve my credit score?
6 Top Tips for improving your credit score
1. Get on the electoral roll
Being on the electoral roll is one of the easiest and simplest ways to help improve your credit score. Not only that, credit providers like to know you are on the electoral roll as it is a proof of address.
2. Pay your debts on time.
Missing a credit card payment can have a devastating effect on your credit score. The easiest way to avoid impacting your credit score is to set up your repayments on Direct Debit. Start with paying back the minimum payment by direct debit and then try to increase the payments as soon as you are in a better financial position.
3. Check your credit report
In the previous Millennial Money video, we talked about how to check your credit report. You should check your credit report at least every year to ensure that there are no errors on your credit file. This should ensure that when it comes to getting credit, you are not rejected due to an error on your report, as a rejection could further impact your credit score.
If there are errors on your credit report this can be easily rectified by contacting the credit report providers such as Noddle and Experian.
4. Manage your debt
Debt is often unavoidable and so long as you manage your debt well, then it should have a positive impact on your credit score. In fact, if you have never borrowed money, then it may actually hamper you when it comes to getting loans or mortgages, as you have no credit history for the lender to check. The best way to show that you can manage debt is by aiming to stay within 15-30% of your credit limit. For example, if you have a £10,000 limit, aim to stay below £3,000.
It means that you're using credit responsibly, you're managing it well and you are able to repay it. Think of it like the first time you were allowed out of your house by your parents. You don't stay out until 4am as you will never be allowed out again; it's similar in the credit world. Lenders want to see you managing your credit and being responsible before they release all of the credit. So if you are sensible and are managing your finances well, then you've got a much better chance of getting a loan or mortgage.
5. Pay more than the minimum.
As previously mentioned, try and pay more than the minimum if possible. It demonstrates your ability to manage your debt but more importantly, if you only ever pay the minimum it will take you a very long time to clear your debt. Overpaying demonstrates that you are in control of your finances and it should positively impact your credit score.
6. Avoid those who have bad debt
If you are financially associated with somebody that has a bad credit history, then their bad credit can negatively influence both your credit report and your ability to get credit. A solution would be to disassociate yourself by keeping your finances as separate as possible, such as having your own bank account and be responsible for your own bills.
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