Has your credit application ever been rejected? Are you concerned about your credit history or score before applying for a mortgage, credit card or loan? Are you worried about some loans you have taken and some slips that have happened in repayment?
No need to worry. Some ways can help you to make your credit score better and increase your creditworthiness.
What is a good credit score?
There isn’t any particular rating or score, which lenders use to decide whether to provide you with the loan or credit or not. In addition, there isn’t such a thing as a credit blacklist.
The scores which agencies often advertise only depict your worthiness to get the credit. Worthiness is basis the information registered in your credit report.
These credit reference agencies (CRAs) use a scale to decide a good or excellent credit score. These scales differ from agency to agency.
Despite the scores from these agencies, different lenders have different parameters to decide what and how much credit to provide. However, definitely, a bad credit score will pose a challenge to get credit on reasonable terms from any of the lenders.
Hence, you must take some steps to improve your credit score and your worthiness to get good credit or business loans.
Various ways to enhance your credit score
Checking credit reports periodically and rectifying the errors
It is worth checking your credit report periodically. Consider making it a practice to check the report once a month. Make sure the information is correct and up to date in your report.
Keeping a frequent check on the information recorded in your report also helps you prevent the increasing number of identity thefts these days.
If you find any discrepancies or errors, get them corrected at the earliest. Make sure it is not pulling down your score unnecessarily. Notify the credit reference agency so that they investigate the correction and make it on your behalf.
Register to vote
If you are registered to vote, it becomes easier to get credit. Get yourself registered on the electoral roll if you aren’t. Agencies often use the residence address provided in the electoral roll information as a validation check.
Just a few minutes are required for you to register on the electoral website. Do it at the earliest and help yourself in getting good credit.
Make your rental payments count
It happens at times that the monthly rental payments accumulate more than homeowners.
Despite that, you find it challenging to prove your worthiness of taking credit and repaying the loan. Now, housing tenants can add this rental payment record to their credit history.
You can ask your landlord or the letting agent to report the rental payments to The Rental Exchange so that you can benefit from them.
Soft searches instead of Hard searches
At times lenders or creditors use ‘hard credit search’ to check your background and eligibility whenever you apply for credit. These checks leave a footprint behind on your credit history. This is visible to other lenders too.
Hence, ask your lenders to use a soft search instead of a hard search. The soft search will provide an idea of acceptance of your application and what interest rate you may get. But the beauty is that this won’t be visible to other lenders in your credit report.
Avoid multiple applications
Do not instantly apply for another credit if you have been rejected recently. If you apply immediately, it is counted as multiple applications.
And multiple applications in a short period indicate your financial crisis to lenders. And make it challenging for you to get the credit from the lender.
Credit agencies say that keeping a gap of about 6 months to open the account can boost your credit score by 50 points.
Even spreading the loan and credit card applications by a few months also helps in boosting your score.
Keep your credit usage low
The lender usually looks into the available credit you have for risk assessment. Lenders for credit risk assessment do not consider outstanding balances.
Keeping a low available credit balance is an indication of poor management of finances. This indication to prospective lenders will reduce the potential of extending the credit.
Borrowing too much (i.e. more than 90%) can even drop down your credit score by a few points. Vice-versa, if you keep your balance below 30%, your credit score will get a positive boost.
End financial associations with ex-partners
If you live or marry someone with a bad credit rating, don’t worry; it will impact your credit score. But having a joint financial asset or account will affect your credit history.
If you have held joint financial accounts or assets in the past, it is good to the link broken at the credit reference agencies end. If it is still linked, the lenders would also review the joint holder’s history.
Make sure to get the link removed so that your future credit applications don’t get impacted.
Avoid CCJs and bankruptcy
Declaring bankruptcy or entering into an Individual Voluntary Arrangement, or having a CCJ against you is definitely a good thing for your creditworthiness. These for sure make a dent in your credit report.
If you are in a financial crisis situation, it is advised to explore if there are other alternatives and avoid these routes. IVA’s or CCJ’s usually take you a lot of time (years) to vanish from your credit report.
Credit scores are determined and assessed by a combination of factors. If you understand the different factors and parameters that go into consideration while deciding your credit score, you will be able to manage your credit score better.
Pick out the issues or areas which are impacting your credit score or worthiness to get credit and tackle them one by one. Treat this as a marathon. Go slow and strategically, doing one step at a time.
Emma Anderson is a highly accomplished Editor-in-Chief at 24cashfinances, renowned for her exceptional expertise in the finance industry. Holding degrees in Finance and Marketing, Emma has developed a deep understanding of the financial landscape, particularly when it comes to loans and personal finance.
Emma’s professional journey began as a financial analyst, where she gained hands-on experience in evaluating market trends and analysing investment opportunities. Emma’s enthusiasm for writing and her goal to educate and give individuals a voice motivated her to move into financial journalism. Her work has been published in popular magazines and she has produced thought-provoking pieces on various financial topics.