Many of us may still be feeling the effects of an expensive Christmas and New Year, and as energy costs increase the cost of living is going up. It’s easy to think you don’t have control of your finances, but you can start making changes now that will help you in the year ahead.
One of those things is to make sure you have a healthy credit score. This can go a long way towards putting you in a good position later down the line.
So, how do you build your credit score? Read on to find out.
What is a credit score?
A credit score is a number – typically a three-digit number – that represents the health of your personal credit file. Your credit score is calculated by credit referencing agencies, the main three being Experian, Equifax and TransUnion. Although each agency does it slightly differently, the basic rule of thumb is the higher the score the better. This score indicates how reliable you are in terms of keeping up with repayments, based on your credit history.
The higher your credit score, the more likely any credit applications you make (like mortgages, loans or credit cards) will be accepted. You’re also more likely to get a lower interest rate and higher credit limits if you have a high score. This is because you’re considered to be a reliable borrower based on how you’ve handled money in the past.
Your credit score may change – either moving up or down – when you use credit. How well you manage any money you borrow, such as paying off the balance on time, is likely to have an impact on your score. Doing a credit health check by checking your credit score will give you a summary of how your borrowing looks on paper.
It may also change if you apply for credit, such as a loan or credit card. This information is in your credit report, which includes your personal details, any loans or credit you’ve had recently, and inquiries by companies for your credit report. Hard searches by potential lenders, such as when you apply for credit, will show up on your credit file, while soft searches, such as checks by eligibility checkers, won’t.
How to improve your credit score
As long as you keep up with your monthly repayments on the card, and manage your other finances well, you should be able to build your credit score. This is because it shows that you can be good at managing your finances. But remember, not doing so could harm your credit score.
If you have a bad credit score, keeping up with repayments and managing your finances well is one way to help improve your score. Some credit cards are even aimed at people with bad credit. Other things that could help include:
- Checking your credit report is accurate
You can request your credit report for free from one of the credit referencing agencies or some credit checking services and double check the details that are on file for you.
Look out for incorrect information, such as misspelt names and addresses or accounts you don’t have and ask for it to be changed. Even the smallest mistake could influence your score.
- Know when to use your credit card
Having a credit card and using it can be good for your credit score as it shows that you can meet repayments. However, it’s crucial that you know when to use it and to ensure you have the funds in place to pay it off. For instance, if you use it for a large amount, like a holiday, make sure you keep up with your monthly repayments as required by your provider.
- Keep up with repayments
Keeping up with regular repayments is also crucial. Stick to the repayment schedule and plan for these outgoings.
Having a good score can be hugely beneficial for you in the long run. Take the time now to check through your report and find ways to improve that number.
