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Improving Your Credit Score

Improving your credit score is a crucial part of everyone’s financial life. By improving, you open yourself up to increased financial opportunities and make yourself a much more appealing prospect to future lenders, be they providers of payday loans, installment loans and even mortgages and credit cards. This applies across the board, particularly with direct lenders in the UK who make lending decisions (the decision as to whether or not to lend to a prospective customer) themselves.

Your credit score is a record of your past credit and financial behavior, available as part of your credit record that lenders will check before making their decision as to whether or not they should lend to an applicant. If an applicant has a negative credit score, of a lower number, they are deemed to be of higher risk as their past behavior suggests they will be delayed in repaying or may default altogether.

The higher the risk to the lender, the lower the chances of the borrower receiving a loan. This is because in such cases, the chances of the lender recouping the money they require in return from the borrower are significantly lower. If however, the borrower has a positive credit record, they are deemed more likely to be able to afford and therefore repay the loan and therefore they are more likely to receive the loan or credit applied for.

There are however, a number of ways in which you can work towards improving your credit rating; improving your chances of being provided the loan or credit you may apply for in the future.

Practices to Avoid When Building a Credit Record

Generally speaking, the fundamental way of improving one’s credit score is to demonstrate positive and responsible financial and monetary behavior. There are therefore a number of practices to avoid:

  • Applying for too many products at once – Each time you apply for credit or a loan, it is very likely that the lender will carry out a credit check. This check may leave a hard footprint [record] of its search. If you apply for many products, there will be a record of a credit search from each lender, leading others to believe that you see yourself as unlikely to be accepted for credit
  • Avoiding outstanding repayments – If you owe money in any capacity, including if you have outstanding household bills and credit (for example car finance) it is important you clear these debts, ideally before applying for any further credit. This is to help ensure there are no ‘open’ debts
  • Borrowing more than you can afford – It is crucial that you do not borrow money you do not fundamentally need and that the money you do borrow, you are able to repay on time. If you borrow too much money, you may be putting yourself on the path to a spiral of debt. Being unable to afford the repayments and missing your repayment dates, you will further harm your credit score, making you less likely to receive future credit

How Can I Improve My Credit Score?

A number of accepted practices are able to go a long way in improving your credit score. These practices are a very good way of demonstrating to future lenders that you can be responsible with your money and that you are therefore a more appealing lending prospect:

Register to vote – By registering to vote, you will be placed on the Voters Register. This provides the permanent address of those on the list. This is positive behavior as it shows you have a permanent address and are therefore more contactable (by post and landline) for lenders

Paying on time – By paying your debts off on time, you will clearly demonstrate to lenders (particularly if they request to see your bank account via a bank scrape) that you can prioritize and that you pay what you owe on time. This indicates to them that you will treat their loan in the same way and will pay it off as soon as you need to

Avoiding bankruptcy – By not having declared yourself bankrupt, you will indicate to lenders that you are more stable than those who have with your finances

Spend responsibly – By holding a credit card and repaying your balance in full on time, you will improve your credit score as timely repayments for credit is a great way to indicate responsible credit behavior and this is taken into account by lenders of both short and longer term finance