Improving credit: 5 things you need to know
1. Improving credit starts with your Free Credit Report
If improving your credit is on your mind, your Free Credit Report from TotallyMoney will let you know what you can do to make it better. Not only has our Free Credit Report been designed to be easy to understand, it will also draw your attention to areas that could be having a damaging effect on your credit rating. In any case, you need to be fully aware of your financial situation if you’re going to take appropriate steps to improve it. Luckily, your Free Credit Report also comes with a Live Credit Score that’s updated whenever you log in, so you always have the most accurate idea of your financial situation.
2. The electoral register: great for improving credit
Being on the electoral register can work wonders for improving credit, as it lets lenders verify your name and address. Not only does being on the electoral register show you’re a genuine person and that your credit applications are legitimate, it can also prevent delays in the lender’s decision-making. If you’re not on the electoral register, lenders might have to verify your identity in some other way — or worse, they might refuse your application for credit altogether. Any hint of doubt as to who you are can set lenders’ alarm bells ringing. Think of it this way: if a lender accepts a credit application from someone whose identity is uncertain, will they feel confident they’ll be able to get back their money back?
3. Improving credit happens by using credit
If your borrowing and repayment history is good, lenders are much more likely to feel confident they’ll get their money back from you. So, when it comes to improving credit, you have to convince lenders that you’re capable of borrowing money and paying it back when you should. You can do this by using a credit card, taking out a loan, or even getting a mobile phone contract. Whatever you do, the most important thing is that you use the credit responsibly. In practice, this means taking out credit that’s within your means, and always keeping up to date with your repayments. In a lot of cases, it won’t be that you’ve managed credit poorly in the past: it’ll be that you haven’t managed credit at all. If lenders can’t see you have a good track record when it comes to borrowing money (because there isn’t really a record at all), they’re much more likely to reject your application for credit. If you’re thinking about taking out a loan or getting a credit card to help improve your credit, you should definitely use an eligibility checker before you apply. It should give you the information you need to apply for products you’re mostly to get accepted for. This is important, because having an application rejected doesn’t bode well for improving credit. In fact, it can have the opposite effect.
4. Always pay on time to improve credit
Improving credit is something that just can’t happen if you frequently pay late or miss payments altogether. This kind of behaviour makes lenders think you’re bad at managing your money. Even missing one payment can undo all the effort you’ve put in to improve your credit. So, if you do take out any credit products as advised in tip number three, the best thing to do is set up direct debits for at least the minimum payment each month. That way, you’ll never be caught out should you forget. If you can, you should manually make additional payments to clear your debt faster. It can work wonders for improving credit. In fact, it’s not advisable to make just the minimum payment each month, as it will probably take you decades to clear your debt.
5. Use your savings to clear debt
It might sound obvious, but using your savings to clear debt is great for improving credit. This is because it shows lenders you’re capable of paying back any money you borrow. Also, by not being in as much debt, you’ll be using less of your available credit. This shows lenders you’re not pushing your credit limit to extremes and that you’re on top of your finances. What’s more, not using your savings to clear debt will likely end up costing you more. The interest you pay on your debt is usually much more than the interest you’ll accrue on your savings. For more advice about improving credit, read our guide: ‘11 tips on how to improve your credit score.’