A good credit score indicates sound financial health.
When applying for a loan, mortgage, or even a car, your credit score helps decide your eligibility. Various payday loan providers rate your credit profile to determine if you meet the requirements. Having no credit history can be just as bad as having a bad credit history. First, you must understand how credit loans and scores work. After sufficient knowledge, you may take steps to improve your credit score. Following are the most effective ways to improve your credit score in 2021;
1. Get registered at your current residential address
Many lenders make use of electoral rolls to verify the identities of the borrowers. This verification is necessary to combat cases of identity fraud. That’s why it may cause you problems if you are not registered to vote at your current residential address. Correct this mistake immediately and get yourself registered with the electoral roll with the correct address. Following three actions can also help boost your credit score;
- Live at the same address for a reasonable period. Do not change your residence frequently.
- Remain in the same employment with the same employer for a reasonable period.
- Use the same bank account for a reasonable period.
These actions indicate that you have roots in the community and are not likely to renege on any agreement.
2. Build-up a credible credit history
Lenders typically look at your past credit information to decide your eligibility for a loan. Your credit history becomes even more important if you apply for a hefty amount, like a mortgage.
Please keep in mind that having no credit history is not necessarily a positive thing. If you have never owned a credit card, taken a mortgage or a loan, the lenders won’t be able to decide if you are a credit risk. If they cannot rightly evaluate your past performance, they won’t feel confident in lending money to you. If you wish to secure a viable credit agreement with the lender, you must establish a positive credit history.
Positive credit history is not difficult to establish. Just take your credit card and make small purchases every month. It will prove that you have financial management skills. However, make sure to pay off the card in full every month; otherwise, your score will be ruined. Also, make sure to establish a direct debit payment system, so your loan is paid off even if it slips your mind.
3. Financially disassociate from your ex-partner
If you take a joint mortgage or open a joint bank account, you become financially linked with your partner. It means their bad credit score will also impact your own and vice versa. Having joint finances is a sound idea as long as you live together. But if you break up, get separated, or divorced, make sure to have a clean financial break as well. Inform the credit reference agencies that you are no longer associated with your ex-partner.
4. Keep your balance at the lowest
Do not let your credit card balance exceed 30% of your credit limit. It will reassure the lenders that you do not use too much credit and keep up with the repayments. It will also ensure that you receive your loan whenever you apply for it.
This kind of equilibrium is not easy to achieve. But with some vigilance, you can certainly achieve that balance between keeping your credit in use while ensuring it does not exceed the arbitrary line.
5. Don’t miss repayments
Missed or late repayments are bad for your credit score. They can stay on your credit file for up to 6 years. Any potential lender will feel wary lending you a loan based on this in your file.
If you are late in repaying because of circumstances beyond your control, this is what you do;
- Make the repayment as soon as you can, even if it is late.
- Pay the fines or late fees (if any).
- Talk to your credit provider to convince them the circumstances were out of your control.
- If possible, have this removed from your credit file.
The same principle applies to utility bills as well.
6. Pay off your debts
Paying off your debt does not mean making the minimum monthly payment only. When you try to pay off your debt as soon as you can, such behaviour counts as a positive mark in your credit file. It ensures your lender that you are a trustworthy borrower and will return the loan at your earliest convenience without any prompt.
7. Close unneeded accounts
Nowadays, lenders are paying close attention to the magnitude of credit available to a borrower. Therefore, if it seems you have access to a lot of credit lines, they may feel reluctant in offering you additional loans. Hence, you should close down any existing accounts that you do not need nor use.
To cancel a credit card, you must contact your provider and officially cancel the agreement or contract. Paying off your card and cutting it up is not enough for cancellation. The same principle applies to any other similar financial aids, like store cards or unused mobile contracts.
Make sure to go through your finances regularly to ensure you haven’t missed anything.
8. Stop applying for credit again after rejection
This suggestion may seem counterproductive, but it is not without reason. If a lender refuses you a loan, you must not recklessly start applying anywhere and everywhere. Each credit search leaves a ‘footprint’ on your file. Too many applications in too short a time indicate to the lender that you are overstretching yourself or are desperate for money and may become a credit risk.
Ideally, it would help if you tried to determine your eligibility likelihood before applying for a loan. Do not apply for a loan on products or services that are not an absolute necessity.
9. Use a prepaid card to repair your credit
You can use credit-builder prepaid cards to help you with your credit rating. These cards cost a small monthly fee, i.e. about £5. This fee is in the form of a small loan. It would be best if you continued paying it off for a year. But fret not – because, in the end, it will add an additional entry into your credit file, indicating that you have successfully repaid your debt. No prepaid card requires a credit reference because using it does not involve borrowing funds against it.
10. Always be aware of your credit score
You must check your credit score regularly to ensure nothing is amiss, especially before applying for a large loan. If your credit report is not up to your satisfaction, this check-up will highlight the areas you may work to improve. All the discrepancies in your report will be highlighted, allowing you to take countermeasures. In addition, you may contact your credit provider to correct any mistakes in your file. Keeping everything up-to-date will ensure that when you apply for a loan, it will not be refused.
Whether you are striving to improve your credit score after the financial strains of 2020 lockdown or simply trying to ensuring you get the best products in 2021, follow these easy principles to maximise your score. A respectable credit score is vital to receiving a loan with proper repayment conditions. Lastly, make sure to borrow from reputed lenders only.