If you have a low credit score, you may already know how a bad credit score can affect your financial life. If you’ve been refused credit previously or find it hard to get a good deal on finance, this may be due to your low credit score. Improving your credit is all about creating new financial habits and understanding the factors that affect your credit. It can take time to improve a low score but once you do, the benefits can be endless!
Why is good credit better?
When you apply for any form of finance or credit, a finance lender will ultimately decide whether they want to give you finance or not. Things like car finance for low credit scores can be harder to obtain as lenders may be worried that if you’ve missed payments in the past, you’re more likely to do so in the future too. From a lenders point of view, it’s all about risk and the likelihood they will get their money back on time and in full. A better credit score shows you can handle credit responsibly and are more likely to stick to the rules of any future finance agreements.
Having a good credit score can give you access to:
- Easier acceptances for finance and credit.
- Higher credit limits and the ability to borrow more.
- A lower interest rate which makes borrowing cheaper.
- More negotiation power with more lenders wanting to offer you finance.
How to improve a low credit score for good.
As we’ve mentioned above, credit score is all about creating new financial habits and being able to stick to them. It can take a good few months to improve your credit score especially if you have high levels of debt. However, once you do, your financial life can improve massively.
- Build a small credit history.
A common credit score myth is that no credit is a good thing. However, in some cases you may need to have credit to get credit and many people assume no credit in the past is a good thing. However, you can have a low credit score due to no credit in the past. Its best to build a small credit history if you don’t already have one. This can be as simple as a mobile phone contract in your name and setting up a direct debit to take the payment on time and in full each month.
- Stay within your credit limits.
Your credit score is calculated on how much of your available credit you’re using. Having high levels of debt and maxing out credit accounts can have a negative impact on your score. You should try to pay off as much debt as you currently owe before taking on anymore. Once you have, you should only use around 30% of your available credit limit at once and pay it off as soon as possible.
- Check your credit report for any errors.
A great financial habit to get into is checking your credit report regularly and understanding what the information listed on it means. When you check your report, you should make sure all your personal information is accurate and up to date. If you need to make any changes, you can contact the credit reference agency who provided your report and update your details. If you make an application for finance and the lender runs a credit check on your report, they make decline your application if the details on your report don’t match up with your application.
- Remove negative financial links.
When you take out finance or credit with someone else, you will usually become financially linked on your credit report. This can happen when you take out a loan with a guarantor or a joint finance application. If you no longer have any active credit with someone, you’re financial linked to, it can be a good idea to remove them from your credit report if they have bad credit. Their score can be impacting yours too and its best to disassociate yourself.
- Make payments on time and in full.
Last but not least is one of the most influential factors to your credit history. Your ability to make payments on time and in full has a massive effect on your credit score. Missed or late repayments harm your score and affect your ability to borrow in the future. If you constantly miss payments, future lenders won’t think you can be trusted to stick to the rules of any finance they offer you and they can decline your application.