Your credit score is a number which is derived from the information held in your credit file; this number tells lenders how likely you are to pay a loan or credit card bill back on time. The higher your score, the less risky you are perceived to be. A good credit score means that you should have little or no trouble obtaining credit at the best available rates. If you have a poor credit rating then you will find it more difficult to obtain credit at attractive rates and in some instances may find yourself unable to access lines of credit at all.
To find out if your credit rating could be improved the first thing that you should do is get a copy of your credit score from one of the big credit card bureaus, such as Experian, and find out what your score is. You can do this for free. Anything above the 620 mark and you will generally have no trouble obtaining credit at good rates. If your score is below 620 then you may find yourself being offered less than attractive interest rates and credit terms.The following tips will help you to build up your credit score.
Reduce your credit card bills
It is advisable to have a big gap between the amount of credit you have and the amount that you are actually using. If you can manage to pay off your credit card bills in full, then that’s a good position to be in. If you are not able to do this then try and reduce your balance as much as you can, ideally to around 30 percent or even less than the credit limit on each card.
Use your credit cards as little as possible
Figures that are generally included on credit reports are the balances from your last credit card statements. So you may have spent $3000 and then paid it all off when the statement came in – but that won’t necessarily do you any favours. It’s better to keep balances low and manage them responsibly; conversely, closing all your credit card accounts will not help your credit rating and could actually harm it. Someone with no credit facilities at all tends to be a higher risk than somebody who owns a card or cards, keeps their balances low and manages them properly.
Register to Vote
Lenders and credit reference agencies want to know where you live, so make sure that you register your details on the electoral roll. To do this you should contact your local council, the process is quick and easy. Make sure that you update the register if you move, credit card companies also like to know that the information they hold on you is up-to-date.
Use your old cards occasionally
The older your credit card history, the better your score will be – unless you haven’t paid your bills on time, of course. But if you stop using your oldest cards when you get new ones then the card issuers may stop updating the credit bureaus with the latest information from your old accounts. These ‘dormant’ accounts will still appear on your credit report but lenders won’t place as much importance on them as they will your active accounts when they credit score you. Every few months use your oldest card or cards, charge a small amount and then pay the balance off in full when the statement arrives, just to keep them ‘on the radar’.
Avoid too many credit applications
Most of us will have been rejected for credit at one time or another. But each time you make an application for credit, it leaves a mark, or ‘footprint’ on your credit file. These footprints tell a lender how many times you have applied for credit – too many footprints in a short space of time will harm your credit score. If you have applied for credit in the last few months and been refused, do not rush to apply for more. As a general rule of thumb, only make one application for credit every six months.
So if your credit score is less than perfect, don’t panic, because there are ways that you can improve it. This in turn will increase your chances of obtaining better credit facilities in the future.