There are a few things having a poor credit score can affect – the ability to get a loan or a good rate, personal finance for a car or trouble with renting. But if you do have a poor or thin credit score (a thin credit score is often down to not having enough credit history), how do you fix it?
Your credit rating is based on a score. Your score is affected by various elements of your financial history, such as types of credit you’ve got or how much debt you have. The score isn’t fixed and will change depending on how you manage your financial affairs.
To Start… Check Your Score
Many credit agencies, such as Experian, offer you the chance to check your score for free. This way you have a starting point and can focus on what you need to do to improve your credit rating.
The two largest things that affect your credit rating are:
- Payment History
- How Much You Have Borrowed vs How Much You Can Borrow (Credit Utilisation Rate)
Other factors include:
- Length of time you have been borrowing
- The types of credit you have
The number of searches people do on your credit file also impacts your credit score. A hard search leaves a footprint on your file, and if you have a number of hard searches in a close period of time creditors might think you are having trouble getting credit, thus impacting your ability to get further credit.
So how do you affect it to make it better? These are some ways you can improve your credit score.
Pay Your Bills on Time
It’s the biggest factor in your credit rating. For this reason make the most of direct debits where you can to make it less likely you’ll miss a payment.
If you’re struggling with cash flow because your bills come out at the same time, try approaching the companies concerned to see if they can change the payment dates. Many companies will offer a solution where they can. However it’s also worth understanding if there will be any consequences of this, such as additional fees or penalties.
It’s always worth being open about your payment difficulties if you are having them. A creditor can explore options with you. Hiding from it will only make things worse.
Credit Cards and Similar Debts
It’s easy to get caught in a monthly minimum trap but paying off credit card debt faster will save you money. Paying off the debt as quickly as you can will really help your credit score.
The credit utilisation rate is the ratio between the amount you have borrowed and the maximum amount you could borrow.
So for example, if you have a maximum borrowing amount of 1,000 and you have 250 of debt, that’s a credit utilisation rate of 25%. A good rate is considered to borrow no more than 30% of the available credit, but 20% is even better.
The bottom line is if you are constantly scraping your credit limit it will impact your credit score. The further away you can get it the better.
An option might be to get a zero-interest transfer, where you transfer to another card a pay off the debt during the interest free period. Make sure that if you do this you plan to eliminate the debt in the interest free period to avoid further charges.
Get A Guarantor To Help
if you have a poor score or a thin credit rating guarantor loans can help. This is where a person agrees to guarantee the loan you take out, taking responsibility for the payments (and the entire loan) if you can’t make a payment. Taking out a guarantor loan can help build your score as long as you make the payments on time (but will adversely affect your score and can affect that of your guarantor, if you don’t).
Fewer Hard Searches
If you’re trying to revitalise your credit score it’s a good idea to try to avoid hard searches where possible. Put off what you can until your score is improved. A score with a lot of hard searches indicates difficulty in getting credit and will negatively impact your score.
Got a Good Score? Now Keep It
Once your score is somewhere near where you’d like it to be you have to put the things in place to keep it there. Only get credit when it’s necessary, keep credit card debt down to a minimum and most importantly, pay your bills on time.
You don’t need a credit repair agency. You don’t. They will do the same things you can, but charge you for it. And remember it takes time. Promises of fast fixes are false.
Start off knowing where you stand and then make the changes, however small to fix improve it.