If you are considering applying for a loan, mortgage, or mobile phone contract in 2021, your credit score will determine your eligibility. Your chosen lender provides your credit score via a credit reference agency (CRA), most likely TransUnion, Equifax, or Experian. Although each of these CRAs in the UK scores you on a different scale, it is essential to understand that factors that determine good or bad credit are similar. If you are looking to improve your UK credit score, follow these five tips:
Payback Loans on Time
Missed or late payments can affect your credit score significantly. It is crucial to pay off more than minimum wage each month to avoid affecting your credit score. Paying off your debts signifies good behavior to a prospective lender, which can help you acquire a loan in the future. To manage your debts well, ensure you are repaying what you have borrowed on time. This also applies to late payments for bills like electricity or gas. It is crucial to show that you are a responsible borrower who can pay the bills on time and stay within limits.
Don’t make too Many Applications
If you applied for a loan and the lender turned you down, do not apply elsewhere. Multiple loan applications in a short period show that you are in financial difficulty making it hard for you to secure a loan. Ergo, before applying, try to find if you will be accepted to reduce the risk of rejection. Remember, whether an application was successful or not will show on your report for a year!
Register to Vote
Most lenders rely on the electoral roll to verify borrowers and combat fraud. Therefore, if you are not a registered voter at your current address, this could cause problems. Before you apply for a loan, ensure you are registered to vote to improve your credit score. According to Experian, registering to vote can boost your credit score by 50 points. Remember, living at the same address, having the same bank account, and being employed in the same job/employer for a reasonable period can really boost your creditworthiness.
Do not Withdraw Cash on Credit Card
Your credit card utilization refers to the percentage of your credit card balance that you’ve used against what you’ve remaining on your limit. For example, if your limit is £2,000 and you have utilized £1,000, your credit utilization is 50%. It is advisable to avoid withdrawing cash on a credit card to keep your credit card utilization low. Low credit card utilization will be seen as positive by lenders and will increase your credit score in the long run. As a rule of thumb, keep your credit card utilization below 25%.
Be Wary of Payday Loans
Payday loans are short-term loans that are designed to help people deal with minor or unplanned expenses. Typically, your credit score will not be damaged by a payday loan as long as you pay it on time and in full. However, there are several exceptions: if a particular company sees short term loans negatively, having one in your credit history is not a good idea. Also, remember loan applications can affect your credit score. Therefore, the more loan applications you make, the higher the chances of affecting your credit score.