Thinking about your credit score may have you shaking your head and improving it might seem tedious but it’s important. Credit lenders will look at your history when deciding whether to take you on as a customer and your score determines how creditworthy you are.
In the UK, many Brits grapple with suboptimal credit scores. In fact, about 20% of people in the UK are saddled with a poor credit rating. Improving your credit score can open doors to financial flexibility and stability, making everyday financial interactions both easier and more affordable.
Simple actions can significantly influence your credit score. These steps not only enhance your financial health but also expand your opportunities to benefit from better credit offers.
Paying Bills On Time
One of the most straightforward ways to maintain or improve your credit score is by consistently paying your bills on time. Payment history is a significant component of your credit score, contributing profoundly to lenders’ perception of your reliability. Missed payments can stay on your credit report for up to six years, underscoring the need for punctuality.
An often overlooked aspect of credit management is the effect of closing old credit card accounts. This can actually shorten your credit history and potentially lower your score if not managed carefully.
Managing Your Credit Utilisation
Credit utilization, or the ratio of your credit card balances to your credit limits, should ideally stay below 30%. High utilization can signal to creditors that you’re over-reliant on credit, which can negatively impact your score. Regularly monitoring and managing your credit utilization can help portray a picture of prudent financial management to lenders.
Limiting Credit Inquiries
Every time you apply for credit, a hard inquiry is recorded on your credit report. These inquiries can slightly lower your score for a short period. To mitigate this, it’s wise to limit the number of new credit applications you make within a given time frame. This is particularly important when you are about to apply for significant financing, like a mortgage or car loan.
Diversifying Your Credit Mix
Creditors look favorably upon a diverse mix of credit accounts — such as credit cards, personal loans, and mortgages. This variety can indicate to lenders that you are capable of managing different types of credit responsibly. However, it’s crucial to only take on new credit if it’s absolutely necessary and financially feasible.
