In the UK, credit scores aren’t officially a thing. Whilst they are provided by the credit reference agencies, they operate only as a guide to your overall credit performance. Nevertheless, a high score tends to mean you are doing well, and a lower one demonstrates there is room for improvement.
This article is here to help you if your credit score needs to improve, so you can get your personal finances back on track. So, let’s get into it…
1. Make payments on time
If you want to improve your credit history, the best thing to do is make payments consistently on time. It may also be worth having a look at your credit report to determine what your history is like on your accounts.
This is also a good time to consider some healthy habits. You want to make sure you are completely on top of due dates, there are a few different ways you can approach this. One would be to pay your bill as soon as it comes in, another is to set up a direct debit to ensure it gets paid, or to set a reminder on your calendar app and pay when the reminder comes in.
Remember, for credit cards, the most important step is to pay the minimum payment. So, in this case, you could pay the minimum payment immediately before deciding how much more you can afford to pay at a later date. But as long as you’ve paid the minimum, that counts as paying on time, even if you’re carrying a balance on the card.
2. Reduce your credit utilisation ratio
The best practice with credit cards is either to pay off the full balance at the end of each month or only use a small percentage of the available credit you have available. Ideally, you want your debt level to be under 30% of your credit line.
But what if you’re not in that situation right now? Well, there are a few things you can do, one would be to make a concerted effort to repay as much of your debt as you can, another approach is to take out another card that you don’t use or get your credit limits increased.
Whilst you can ask for a credit limit increase, this is probably not necessary because banks often do provide increases to customers in good standing. So, if you use your card regularly and pay off your balance each month, there’s a good chance you’ll be offered an increase.
3. Limit new credit applications
Sometimes your credit score might be lower than you would like, not because you don’t have a strong credit history, but because you have made too many applications. Remember, every time you make an application for credit, this counts as a hard search, which in turn lowers your credit score.
The good news here is that this problem is easy to fix; your score will gradually increase again once you have a period without submitting new applications. So, the best practice is to hold off for some time if you’ve recently taken out a new credit card or similar personal finance product.
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Your credit score is not something to be obsessive about, since it’s not actually used by lenders. But it does give you a decent guide on how well you are doing with managing your finances. So, there are good reasons to want to improve your score.
This article has provided a useful starting point. Remember to make payments on time, reduce your credit utilisation ratio and limit new credit applications. Taking these simple steps should see you getting back to financial health in no time.