A credit score is like a permanently changing picture, that tells banks and lenders what kind of a spender/saver/borrower you personally are. When you make an application for a bank account, or maybe even a loan or mortgage, banks will request your credit file. It paints them a picture. It tells them if you have missed any payments, are struggling with too much debt, or have ever been bankrupt. With this information, they can make a decision on whether to help you out or not.
Do they think if they lend you money, you will pay it back on time? For banks, it is all about risk and they want this risk mitigated. So your credit file is very important, you will carry it through life and it will change as you do.
Many people do not know the importance of the credit file, or how to improve it. And you can – improve it, that is.
There are some things you can do to stop your credit file from spiraling out of control, painting a bleak picture to your banks and lenders. It can take time – sometimes months, sometimes a year, but it is possible. If you are thinking of renting or buying a house in the near future, it is well worth checking out your credit file NOW.
How to Check
There are many online agencies that can give you access to your credit file, so you can see exactly how those banks and lenders will see it too. Sometimes it will show you a number and give you a rating, such as ‘fair’ or ‘good’ to show you whether your credit file is looking positive or not. You will be surprised at how much you can see on your credit file. Even cards that you might not use will be listed on there – yes, they know everything about you! Make sure you check your online credit file regularly so nothing trips you up.
Have a Clearout
You might think after checking your credit file that having a tidy-up or a clear-out is a good idea. Look at those old cards, store accounts, and so on – what can you tidy up here? Any old cards, you might want to shut down. This may cause a temporary blip in your credit score, but it should boost it shortly after. You may want to pay off any outstanding store cards, especially if there isn’t much on them. Wonga likens this as very similar to a financial MOT. By doing this every so often, once a year is ideal, you can clear out the older links associated with you and keep your credit score fresh and positive.
It’s All About Your Connections
Money Helper also recommends you think about your wider family circle when it comes to your credit score: “Your credit file will also highlight details of any people who are financially linked to you – for example, because you’ve taken out a joint loan with your partner.” If your partner is not so good at meeting their financial obligations on time, then this could reflect badly on you.
Yes, you are linked to them in all aspects of your life, including your credit file! So, you have to either help your partner to improve or sever your joint financial connections with them while you improve your own score. If you want to take out a joint mortgage, you will obviously both need to work on your credit files in order to be successful.
Meet ALL Payments on Time
One of the worst things that can show up on your credit file is a missed payment. It really shows those banks that they can’t rely on you. Try to meet all payments on time, including the minimum amount of credit cards each month.
Young People Don’t Get off Lightly Either
Young people might think they have a good credit file because they have no debt, no credit cards – no obligations, but sadly, this isn’t the case. A “thin” credit file doesn’t show the bank enough information about you. You will need to bolster your file by opening an account and spending minimally on it and then meeting repayments on time. For example, open a low-interest rate credit card from a reputable lender, buy your groceries on it each week, then pay it off IN FULL each month. This shows responsible lending.
That’s it for our tips today, we hope these suggestions help you in your journey to improve your credit score!