5 ways to increase your credit score
The elusive credit score. Most of us
understand that it’s a good thing to have a good one. But does anyone actually
know what impacts it and by how much?
To make your credit score feel less abstract,
in this video I’ll not only take you through 5 of the main factors that affect your credit
score, but I’ll be putting each one through our snazzy Finder Credit Score Scale of
Scales to see by how much each factor actually affects your credit score.
According to Experian, the average credit score in the UK is 797. So, for every scenario we
put through the scale of scales, I’ll start off with that score to demonstrate any changes.
If you end up watching this video and thinking, yikes, my credit score is looking a little worse
for wear – fear not! For each factor I cover, I’ve also included some helpful
tips to keep your score up or, potentially, give it a little boost.
Credit Score Scale of Scales powered by data from Experian. Experian’s credit score
ranges from 0 to 999 on a scale of “very poor” to “excellent”. Credit score bands will differ
depending on the credit reference agency.
One late or missed payment on your credit
report might not feel like a huge deal, but even 1 could cause your credit score
to drop. And a history of late or missed payments could even lead to your credit provider
upping your annual percentage rate, or being rejected for future credit applications.
If we run this scenario through our Scale of Scales you can see that paying a bill late
could cause your score to drop by as much as 130 points. That’s enough to potentially knock
you down from a Fair to Poor credit score, depending on where your score is at.
So, solutions! If you miss a payment there are a couple of things you can do to potentially
stop your score from dropping.
If you’re only a few days late, contact your credit card provider
as soon as possible as you may be able to sort out the payment before it gets officially reported
to credit reference agencies. In our Finder credit score dashboard, the “your insights” carousel will
give you an at a glance look at your score and report, with the option to dive deeper into any
factors keeping you from staying on track.
Your credit utilisation ratio, or CUR, is the
ratio of credit you are using against what the bank is willing to lend you. For example, if I
have a credit limit of £1,000 and I spend £500 of it, my credit utilisation ratio would
be 50%.
A good credit utilisation ratio is generally considered to be around 30%.
So, even if the bank is willing to give you a massive credit limit, that number is not
a challenge, and actually having a CUR over 90% can cause your credit score to drop by 50
points. Whereas keeping your CUR under 30% could potentially boost your score by 90 points.
One hack to potentially boost your credit utilisation ratio is to avoid closing
credit accounts.
If, for example, you’ve cleared a credit balance and no longer
use the card, keeping that account open in the background keeps that credit limit on your file
which could help keep your credit utilisation ratio lower. You can also monitor your CUR
in your Finder credit score insights.
A common misconception is that being rejected
for a credit application can harm your credit score. In reality, it’s not the outcomes
that are recorded in your credit report, but the number of applications that require
a hard credit check. So even if you apply for 10 cards and get accepted for all
of them, that could reflect negatively on your credit report as it could be a
sign to credit reference agencies that you’re seriously in need of credit.
If we run this through the Scale of Scales, you can see that having an account on your file
less than 6 months old could cause a drop of 40, whereas having no new accounts opened in the
last 6 months could boost your score by 50.
To avoid unnecessary score fluctuations, use an
eligibility checker to see what credit products you’re likely to be accepted for beforehand.
If
you do get rejected, stop and take a moment to review your credit report and figure out why. In
Finder’s credit score dashboard, you’ll not only get a free credit score and access to your full
report, but you’ll also get suggestions to improve your credit score including a tailored to-do
list to keep your progress ticking along.
Being on the electoral roll gives lenders
proof that you are who you say you are when you apply for a form of credit. And it’s a
super simple way to boost your credit score by, potentially, around 50 points.
Your Finder credit insights will flag where you can improve your credit score,
including updating personal information like adding current and previous addresses where you’ve
been registered for the electoral roll at.
Major red flags should be avoided in all
areas of your life, but especially for your credit score.
These can include things
like country court judgements for unpaid debt or a default account where an account has
been shut down due to missed payments.
These can have a serious impact on your score.
CCJs could result in a drop of around 250 points and a default account as much as 350.
Debt can be a stressful subject, if you’re struggling or want to know more, check out
this video on the different levels of debt and how to manage it or click this link to
check out our info guide on debt.
For more information on what factors
affect your credit score and by how much, check out our research into the hidden costs
of missed credit card payments here.
To start your credit score journey with Finder,
including all those juicy insights and support I mentioned, check out first link in the
description under extra resources.
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Until next time, thanks for watching..