How to improve your credit score

Posted on March 12, 2017 by ATB Chartered Accountants

A credit score is the score lenders use to assess the risk levels associated with lending money to you. It is influenced by past financial records, including how long your credit history is, how promptly you pay bills, the number of debts you owe, and the credit you have. If you have a low credit score, you might find it difficult for loan applications to be accepted, or even for rental housing applications to be accepted.

Credit cards and bank loans can be incredible tools when used responsibly, but what happens if you miss debt payments and your credit score drops? The situation can be fixed, but it will take some time.

STEP 1: ACCESS YOUR CREDIT REPORT

There are a number of online credit score checks available to consumers. A credit report will provide information about your financial status, as well as history. By accessing your report, you can access information which will help you make informed decisions about how to improve your situation. You should pay attention to the following:

  • Records held which highlight your current financial status, and previous activities
  • Ensuring these are accurate and updated
  • Check how many credit applications you have completed
  • Check all personal information is correct and up to date

If you have any queries about items on the report, you should contact your lender as soon as possible.

STEP 2: AVOID BULK APPLICATIONS

If you’re credit application has been denied, you may reflexively apply to a different lender straight away without considering why you had your application rejected. This may be more harmful to your chances of gaining credit. The main reason behind this is that regular applications are an indicator for a lack of financial control for many lenders. For example, they may deem your application as a need for finance, rather than to fund a purchase.

STEP 3: AVOID UNNECESSARY CREDIT

A huge number of people have credit cards just for the sake of it. They don’t necessarily have a need for it, however having the option for immediate funds offers them a sense of comfort. This could be negatively impacting your credit score if you are failing to build up any history of using and repaying this credit, as it is an indicator that you are in control of your finances. If you are someone who does use their credit card regularly, ensure that you can pay the balance off in full every month in order to avoid paying interest on the money owed. Another option is to close any credit cards and accounts that you are no longer using so they are taken off of your current credit records.

STEP 4: REPAY YOUR DEBTS ON TIME

It is fairly common for people to pay a bill a few days late without thinking anything of it. In most cases, the creditor won’t see a problem with this as the money is still paid, however, by the time the bill has been paid, there has probably already been a ‘late payment’ note marked on your file. Although it might not seem like a huge deal to pay a bill that is due on Monday on Thursday instead, it could have a negative impact on your credit score. If this is a once off error, there is little chance of it affecting your overall credit score, but if it happens consistently, even for small amounts, you may not meet stricter loan criteria such as that for a mortgage.

STEP 5: MAKE ADDITIONAL PAYMENTS

Direct debits are commonly used to give people peace of mind that their bills will be paid on time, and mean that you don’t have to make the payments yourself. Making additional payments on top of these can positively improve your credit score by showing that not only are you capable of repaying your debts on time, but your outstanding credit balance will also be reduced when your financial status is filed with credit agencies. This in particular can be very helpful as if you look like you spend all of your income every month, you might be seen as financially irresponsible and using credit to sustain your current lifestyle rather than as an additional resource.

The important thing to remember when considering your credit score is that you are in control of how creditors see you. If you stay in control of your finances and ensuring your credit report is up to date and accurate, you can ensure you have the highest possible credit rating.