Now is the time to start making plans for 2019 and for some of them, you will need credit. Maybe this is for a mortgage for a new home, a loan for a new car or to do some work on the house. Whatever it is, a core part of your ability to get such credit is your credit score. So what can you do to improve it and increase your chances of fulfilling your dreams next year?
1) Check credit report accuracy
There are three main credit bureaus, Experian, Equifax and Call Credit and while all are very good at what they do, there can be mistakes. That’s why it is important to check all the data and get in touch with them if you spot a mistake. These simple mistakes can make a big difference to your credit score and are easy to correct.
2) Look at areas to improve
Errors aren’t the only reason for a low credit score and these issues can help you focus on what to improve. You may have a collection account that is still being reported even though the period has passed for its relevance or you may have defaulted on a loan which has been sold to another vendor and is showing twice.
Understanding why you have a bad score can help you find areas to improve and this will make a big difference in what you do. Some companies also offer a paid service to learn more about your credit report and you can use these to get personalized recommendations. You can get a free 30 day trial and then cancel it before you get charged.
3) Create a credit plan
Once you have an idea of what to do, you need to set up a plan to work on those areas. Try software that makes suggestions for ideas. Things like keeping credit card balances down and paying down debt rather than just moving it will all make a difference.
4) Sort out late payments
If you are always late with a payment look to see what you can do. Even ask about a payment holiday to get you back on track. And look at other payment options such as Direct Debit if you tend to forget to make the payment manually.
5) Build a good credit age
It is true that a short or no credit history works against you, so you need to build a good credit age. This is tricky as there are few ways to speed this up, but it will start 3-6 months after you start to get positive credit on your report.
6) Pay off collection accounts
Collection accounts are a big black mark on your credit rating and these should be the first thing you want to pay off. And if you are unsure what the debt it about, contact the company or even the credit bureau to try and dispute it and find out more – there is always a chance it is attached to your account in error.
7) Understand how long things stay on the record
We all make mistakes and these things do have an impact on the credit record but they also only last for a specific amount of time. It is important to understand how long these things last and what you can do in the meantime to make things better.
If you file for bankruptcy, for example, this stays on your credit record for 6-7 years unless it is a Chapter 7 bankruptcy which stays on the record for 10 years. Late payments can also stay on the record for 7 years. However, you only count as being ‘in bankruptcy’ for 12 months so after this you may be able to start taking small steps towards repairing your credit rating.
8) Start with a credit card
One of the best places to start repairing your credit report is with a credit report. The aim is to get a small limit, use it and make regular payments. This shows that you can manage your money and will eventually lead to credit limit increases. These things can help to boost your credit rating but make sure that you don’t take on more than you can afford to pay just to boost your credit rating.
9) Try a secured credit card
Another option is to try a secured credit card. These aren’t common in the UK, but you can find providers who offer them. There’s no credit check needed to get one, but you have to put down a cash deposit called a security. If you miss a payment, then some or all of this is used to repay what you owe. If you continue to make payments and then move to a normal credit card, you will usually get the deposit payment back. These can be a good way to build your credit rating as long as you ensure you can make the monthly payments.
10) Don’t try for too many things
It’s difficult because you need credit to get credit, but you also don’t want too many credit applications or checks to go through in a short time because this can have a negative effect. A hard inquiry to your credit ratings such as applying for a loan or credit card can impact the credit score for as much as 12 months, although only usually by a few points.
If you spot credit checks on your account and you haven’t applied for anything, then you need to look into this. Not only could it affect your credit rating, but it could be a sign of identity fraud and means someone is pretending to be you.
11) Check your credit utilisation ratio
This is a fancy way of saying make sure your balances each month are no more than 30% of your credit limits as this can impact your credit score, even if you clear the balances entirely each month. The debt to credit ratio is a top factor for deciding about new credit and looks at how much your money you have coming in and how much debt you have. Lenders use this debt to income ratio to make sure you can afford payments and won’t give credit if you can’t.