Improving your credit score is an important job, but is by no means a quick fix. Taking the time to make certain changes can significantly help your chances of being approved in the future for financial products including loans, mortgages, credit cards, and even a cell phone.
Making a real and sustained change to your credit rating takes time and a thought-out plan. In this guide, we’ll run through some of the many steps you can take to make concrete improvements to your credit rating.
- Paying off your debts can improve your credit score.
- You can actively boost your low credit score, it isn’t fixed in place.
- Building up your credit score can take some time.
- Joining the electoral register is a free and easy way to improve your credit rating.
- Avoid making too many credit applications – you’ll be perceived as a liability.
- Close down old credit cards that you no longer need or use.
Why Does My Credit Score Matter?
When you are looking to take out a loan, your credit score is one of the most important factors for lenders to consider. Your credit score gives lenders an overview of how responsibly you have used credit in the past. This informs how they think you will use credit in the future.
A high credit score not only increases your chances of being approved for a loan, but it also opens the door to the lowest possible interest rates when you borrow. If you are keen to improve your credit rating, there are many simple steps you can take. This will require some effort and time, but will be worth it if your loan gets approved. Here’s a step-by-step guide to improving your credit score.
What Is a Credit Score?
To start off, it’s important that you actually understand what your credit score is. Your credit score is a numerical value that indicates your suitability to receive financial credit. Banks, credit card companies, and lenders use a person’s credit rating to decide if they are at risk of defaulting on a payment, and if they will be able to afford the repayments.
Your credit score is based on multiple factors: your historical payment history, the number of cards or loans open, your residence, and even whether or not you vote. Lenders will do a credit check to find out this information, and assess your suitability to receive financial credit.
We’ll now take you through some easy steps you can take to improve your credit rating that will make a big difference to your eligibility to receive a loan.
Pay Off Your Existing Debts
It’s no secret that having lots of existing debts will negatively impact your credit rating. Having lost of outstanding debts shows lenders that you have been unable to make repayments in the past.
A simple way to boost your credit score is to look at paying off these outstanding debts. You could consider taking out a larger debt consolidation loan, come up with a manageable repayment plan, or ask existing lenders for a payment holiday.
Join the Electoral Register
By joining the electoral register, you register to vote. This keeps a record of your name and personal information such as your address and your date of birth. Lenders use this this information to confirm your identity. This increases your chances of being approved by lenders as it boosts your credit score.
Joining the electoral register is a quick (and free) way to improve your credit score. Being able to verify that you are who you say you are gives lenders peace of mind that will work in your favour!
Don’t Apply For Too Many Credit Loans at Once
Applying for lots of credit cards or loans in a short space of time can negatively impact your credit score. Each time you apply for a credit card or a loan is recorded and your credit score is adjusted to reflect these multiple applications.
If someone applies for several loans or credit cards each day, they seem to in desperate need of quick money. A lender would not look well on this, as you would be deemed more a liability than someone with only one credit application on file.
This is where Finger Finance can help you. We are a loans connection service. This means that we will match your loan enquiry with the lender who is most likely to approve your application and offer you the best terms. This takes away the need to apply with multiple lenders – all of which are recorded on your file. Finger Finance does the hard work for you, with no impact on your credit score.
Keep Your Utilization Rate at Around 30%
Your utilization rate (or debt-to-loan ratio) is seriously considered by lenders before they offer you credit. This shows the lender how much credit you are able to use, compared to the credit that you actually use. This quickly shows a lender whether you are using your credit irresponsibly or not.
To give you an easy example, if your credit card allows you to borrow $1,000 per month, and you borrow $100 per month, your utilization rate would be at 10%. Many credit rating agencies suggest that you should keep your utilisation rate at around 30% – $300 per month in this example. This shows the lender that you are a responsible borrower that keeps up repayment and only borrows what you can afford.
Close Down Any Cards That You Don’t Use
If you have lots of open credit accounts, lenders will think that you have access to a lot of funds that you could use at any point. We’d recommend closing down any cards you don’t use, or paying off any that you don’t need.
Lenders may not look well on an applicant that has a salary of $2,000 monthly, but has access to $10,000 in credit over the same period.
Let Finger Finance do the hard work for you! We can match your loan enquiry with the lender who is most likely to approve your application, without impacting your credit rating!