Having a good credit score, as you may know, is hugely advantageous when it comes to doing things like applying for a short-term loan, a personal loan, or even a mortgage.
Lenders always take your credit score and credit history into account when determining whether you will make a good candidate, i.e. your ability to repay your loan on-time, and what sort of rate to set you.
So, what exactly is a credit score, and why should you care about how to improve it?
Your credit score is based on a numerical value, where the higher your score, the better your credit rating is – and this number is made up of multiple factors including your historical payment history, number of credit cards or loans open, your residence and even whether or not you vote.
A credit score gives an indication of how well you have paid other types of credit and financial obligations in the past. So if you have a good or fair credit score, this will open you up to several financial products and essentially give you financial freedom.
- Your credit score is a numerical value assigned to you based on your financial history. The stronger your history, the higher your score.
- A higher credit score gives you more financial freedom and the access to different financial products with preferential rates.
- Some of the top ways to increase your credit score include: taking care of your bill payments on-time, controlling your debt-to-loan ratio and even registering to vote.
Top five ways to increase your credit score
1. Control your debt-to-loan ratio.
Your debt-to-loan ratio, or utilization rate, is something that lenders take into serious consideration before offering any credit products.
Your utilisation rate is a percentage which shows a lender how much credit you use compared to how much you are able to. This shows a lender that you’re not using credit irresponsibly.
“We found that most credit rating agencies suggest that you keep your utilisation rate at around 30%, as this shows that you’re a responsible borrower who keeps up with repayments and can improve your credit score dramatically,” Ben Sweiry, co-founder of US loans connection service Dime Alley, commented.
2. Don’t apply for too many credit cards or loans at once.
If you apply for lots of credit cards or loans in a short space of time, this could negatively impact your credit score.
This is because, to a lender, it makes you look desperate if you are making lots of applications every day.
3. Register to vote.
Although it may seem silly and unrelated, joining the electoral register can help to improve your credit score.
The electoral register provides a record of your name and personal information. Registering to vote through the electoral register creates an account of your name, address and date of birth which lenders can then use to confirm your identity, making you seem a more trustworthy candidate.
4. Get a handle on your bill payments.
Another simple way to improve your credit score is to avoid late payments at all costs. Some tips for doing that include;
- Creating a filing system, either paper or digital, for keeping track of monthly bills.
- Setting due-date alerts, so you know when a bill is coming up.
- Automating bill payments from your bank account.
5. Consider consolidating your debts.
If you have a number of outstanding debts, it could be to your advantage to take out a debt consolidation loan from a bank or credit union and pay off all of them. Then you’ll just have one payment to deal with, and, if you’re able to get a lower interest rate on the loan, you’ll be in a position to pay down your debt faster, which can help to improve your credit score.