A good credit score is a financial tool that opens doors to various opportunities, from securing loans and credit cards with favourable terms to renting a home or even landing a job.
In the United Kingdom, credit scores play a crucial role in determining your financial stability and eligibility for credit. However, according to a 2023 Forbes article, the UK population is struggling with its penchant for borrowing. The average debt due to credit cards per person was £1,174.62.
The cost-of-living crisis in the UK hasn’t made people use their credit cards less. Indeed, it has likely caused more financial issues for individuals, potentially resulting in a poor or weak credit score.
With a new year just around the corner, plenty of Brits will be anxious to improve their creditworthiness. But how do you improve your credit score? There are ways to increase your credit score, including applying for a credit builder loan, and they aren’t all about tightening your belt.
- Check Your Credit Report Regularly
The first step to increase your credit score is understanding where you currently stand. Obtain a copy of your credit report from one or more of the UK’s major credit reference agencies, such as Experian, Equifax, or TransUnion.
Review the report for accuracy and ensure that all the information is up-to-date. If you spot any errors, report them to the respective agency to have them corrected. Regularly monitoring your credit report enables you to identify and address issues promptly.
- Register on the Electoral Roll
One of the simplest ways to boost your credit score in the UK is by registering to vote and appearing on the Electoral Roll.
Lenders use this information to verify your identity and address, making you appear more reliable in their eyes. Being on the Electoral Roll can positively impact your credit score, so ensure you are registered at your current address.
- Pay Your Bills on Time
Payment history helps to determine a person’s credit score calculation. You can maintain a positive credit score by making all your payments, including credit cards, loans, and utility bills.
Late payments, even if they are just a few days overdue, can harm your credit score. Set up reminders to make payments or automatic payments to avoid missing due dates.
- Manage Your Credit Utilisation
Credit utilisation, or the ratio of your credit card balances to your credit limits, plays a pivotal role in your credit score. Aim to keep your balances low relative to your credit limits.
Ideally, try to use less than 30% of your available credit. Reducing your credit card balances can quickly and positively impact your credit score.
- Utilise a Credit Builder Loan
A credit builder loan is a financial product designed to help individuals in the UK with limited or poor credit histories improve their credit scores. It is a specific type of loan that is structured to encourage responsible borrowing and build a positive credit history over time. Credit builder loans are offered by various financial institutions, such as banks, credit unions, and online lenders, in the UK. You won’t receive the loan amount upfront.
The lender holds the full financial amount in a savings account or certificate of deposit (CD) on your behalf. You will then make regular monthly payments toward the credit builder loan. UK credit reference agencies will receive a regular report on the payments you make, which results in an increased credit score.
- Build a Credit History
If you are new to credit or have a limited credit history, it is essential to establish and build a positive credit history over time. You can do this by taking out a credit card. Make regular payments and keep your credit utilisation low to demonstrate responsible borrowing behaviour. Your credit score will improve overtime as a result.
Your credit score is a vital financial metric that can significantly impact your financial opportunities in the UK. Whether you are looking to secure a mortgage, obtain a credit card with favourable terms, or even rent a home, a good credit score is essential.
By following these six strategies – regularly checking your credit report, registering on the Electoral Roll, paying bills on time, managing credit utilisation, securing a credit builder instalment loan, and building a credit history – you can take positive steps towards raising your credit score and achieving your financial goals. Improving your credit score is a gradual process that takes time, so stay committed to responsible financial habits for long-term success.