I’ve found myself in a very privileged credit situation now, purely by chance. I didn’t plan for it, I didn’t have a clue about credit ratings, and in all honesty I feel like kicking myself for not planning ahead more.
I was a student not so long ago and I’d never had a credit card or any kind of monthly payment coming straight from my debit account. This meant I had no credit rating. And without a credit rating, how was I going to move into my own place? Well, luckily, my housemates had paid money into my account each month for the general house bills and I’d been the responsible one paying the companies the lump sum.
Thanks to this, I unknowingly helped myself in the future. It got me thinking though, what could I have done if I’d had no credit rating when I’d graduated? And my friends who’d been overdrawn and late to pay so regularly in University, how could they get a better credit score now? I’ve done my research, so read on to find out my 5 simple tips on how to quickly improve your credit score.
What gives you a good credit rating?
Basically, you need to understand that banks and other companies are giving you a credit card or loan at their own risk. They’re lending you money and hoping you’ll repay it, using a credit scoring system to decide whether you’re risky to lend to or not. This scoring system is based on forms you fill out for creditors; each answer is given a score, and these added up to equal your credit score.
The important thing to remember is that no one lender uses the same scoring system, so if you’re rejected by one company you could be accepted at another. The information used to create this score is based on your:
- Public Records:
Whether you’ve been to court or been bankrupt, as well as past dealings you’ve had with banks, your loan history and your credit card history.
- Financial Associations:
This basically shows whether you’ve got any financial connection to any other person; for example, if you had a joint bank account with a partner.
- The Electoral Roll:
This shows whether you’re registered to vote and what addresses and dates you’ve been registered at in the past.
- Utility Payments:
This shows how you’ve been using your previous bank accounts. Have you made payments on time? Have you ever been overdrawn? Do you pay for your mobile contract on time? It’s all available to them.
- Previous Searches:
This shows whether any other lenders have accessed your information in the past 12 months. The more that have, the lower your score will be. So make sure, even though different lenders have different ways of credit rating, do NOT apply too often. This could hurt you in the future. There are plenty of loan checkers available which don’t put a footprint on your score history.
What about if I don’t have a credit history?
So, what can you do if you don’t have a credit history? This doesn’t mean you have the worst credit score possible, it means that the bank has no real information they can use on your spending patterns. Unfortunately this means that banks can be reluctant to loan you any money, and in the case of my friends this has made it difficult for them to move out into their own homes. You need to have had some kind of debt that you’ve paid on time to prove that you can be trusted. This might sound difficult since banks won’t loan to you, but there are some ways to move forward.
My top 5 quick and easy ways to improve your credit score:
Get a mobile phone contract:
By paying this off regularly each month, you’re showing to banks that you can handle debt and be trusted to pay back money on time.
Get a bank overdraft:
You will, more than likely, pay interest for going overdrawn on your card to a certain point. Make sure you pay off your overdraft on time and this will show that you’re handling your money well.
Get a credit card:
The best cards will be out of your reach, and keep in mind to limit your applications (or at least spread out the amount of time you leave between them) because future banks you apply to can see these previous rejections. It doesn’t reflect well and makes you more likely to be rejected in the future. Once you secure a card, buy something and pay the monthly repayments on time. This doesn’t just apply to get a better credit score, but also because the interest rates could really end up biting you if you don’t!
Make sure you’re on the electoral roll
This just confirms you are who you say you are to the credit reference agencies. If you’re not registered, it might seem like you don’t exist to them. This is a really easy way to improve your score, so if you’re not sure whether you’re registered or not just check on the AboutMyVote webpage.
Cancel any old credit cards
If you apply for a new card without cancelling an old one, even if you don’t use it, these still show up on your file. Banks will be nervous – maybe you’re applying for their card because you’re going to max out the others. Of course, this is more than likely not the case, but don’t make them think that way when there’s such an easy solution.
REMEMBER: ONLY ever follow these steps if you can AFFORD to do so. Do not take out a mobile phone contract if you can’t spare that cash at the end of every month, or take out a loan if you can’t afford repayments feasibly. Adding to any existing debt is not good, and makes it even harder to get out of.
So there you have it. Go away, do these things, and enjoy the rewards of having a better credit score. Let me know in the comments below if you have any tips of your own, or if you have any questions about anything here. You can join in the conversation @SensibleReview on Twitter, or by liking our Facebook page.