Having a higher credit score can benefit you in a number of ways and our guide will help you keep your credit score as high as possible. Your credit score is displayed on your credit report or when you complete a credit check. Your score is determined by a number of factors. Such as personal information, previous credit history, number of credit searches, credit utilisation and number of active credit accounts.
What are the benefits of having a higher credit score?
Having a low credit score means you can struggle to get approved for a number of loans. For example car finance, mortgages, credit cards and even mobile phone contracts. Increasing your credit score and looking after your finance can have a number of benefits.
Have more credit available to you
A credit score and credit report is only part of what lenders look at. Increasing your credit score ultimately means you can be accepted for more forms of credit. There are a number of things you may need a credit check for including loans, mortgages, credit cards, overdrafts and even some jobs. Some options may be unavailable to you if you have a low credit score. Whilst there are options available for car finance with bad credit, it can mean that you could receive higher interest charges as you are seen as more of a risk to potential lenders.
You’ll pay less interest
As quickly mentioned, a higher credit score can mean lower interest or APR. A higher credit score means that you are seen as less of a risk to lenders so the interest is usually lower, this affects how much you will pay in the long run. Having a higher interest rate each month means that you will pay more overall.
More negotiating powers
Having a higher credit score means you have access to more loans. It gives you a better financial position means that you have more negotiation power. You can compare a range of loans and choose the best for you or ask for a counteroffer based on a loan you have received elsewhere. Lenders are less likely to budge on price when you have a lower credit score as you will have limited credit options.
How can you improve your credit score?
There are a few easy ways in which you can improve your credit score with minimal effort.
Check your credit report
You may already be aware that you have bad credit or you could have no idea but you should always start with using a free credit check referencing agency. Make sure all your information is accurate and up to date as this can negatively impact your score. You should also check the credit searches which have been performed on your credit file. You must make sure they are all legitimate. If not, you could have been the victim of fraudulent activity. If you need to make any changes or something doesn’t look right, then you can contact your credit referencing agency to make any changes.
Dissociate yourself from financial links
If you took out a joint car finance deal with someone else, then you would become financially linked. If you no longer have any active credit with a financial link, then you should consider removing them. In case they have bad credit, then their score could be negatively impacting yours too.
Register on the UK electoral roll
The electoral roll is a register of all the people in the UK who are eligible to vote. Even if you don’t want to participate in the UK elections then you should register on the electoral roll. Whilst it doesn’t directly increase your credit score it can increase your chances of getting approved as it enables lenders to quickly verify that you are who you say you are.
Avoid making multiple applications for credit in a short space of time
Many lenders use a ‘hard search’ credit check which gets recorded on your credit file. Multiple searches in a short space of time can reduce your credit score. It can indicate to lenders that you are desperate for credit and getting refused from other loan companies. If you want to shop around for the best loan, then you should make sure you are using a soft search credit search only. A soft search is not recorded on your credit file and does not affect your credit score. Most lenders will make you aware before they perform a credit check and whether it will be a soft or hard search.
Keep your credit utilisation low
Getting accepted for a credit card or store card is great. However, you should try to keep your credit utilisation low. You credit utilisation is how much of your available credit you choose to use up. A general rule of thumb is to use below 50% and ideally under 30% of your credit limit. For example, if you have £1000 on a credit card you should use around 30% of your limit which would be £300. Maxing out credit cards and store cards indicate to lenders that you are relying on credit to make ends meet.
Make all your payments on time
One of the biggest ways you can prove to a potential lender that you can be trusted to pay your loan back is to have a solid history of making all your payments on time and in full. If you have a credit card, you should try to avoid only making the minimum payment on your credit each month. Try to make higher regularly monthly payments.
Close any unused accounts
Potential lenders will also look at how many credit accounts are available to you. In case you have many open accounts then they could decide that you do not need any more credit as you are reliant on it. You should close any accounts which you have paid off and will no longer use. This includes credit cards, bank accounts, overdrafts and store cards.