So you’ve discovered you have credit scores, and if you’re reading this, you’re clearly keen to keep yours in good shape. Which is great news because maintaining positive credit scores can help you out with all kinds of financial situations.
The last 12 months have been tough, but they’ve given us all time to think about what really matters in life. While some of us have been able to save some money and perhaps pay off some major bills, others have faced financial hardship. Whatever your situation — now that hope is on the horizon — it could be time to think about the future and put some plans into action.
These plans might involve getting on the property ladder, buying a new car, booking that special longed-for holiday or simply securing a better mobile phone contract. Whatever it is that you’re aiming for, it’s important to get your financial ducks in a row — and a useful place to start is with your credit scores.
A quick recap
Your credit scores are based on your credit history, on factors such as your payment history as well as how much of your credit you’re currently using. It is usually calculated as a number between 300 and 850, which shows a consumer’s creditworthiness.
Lenders then use this to assess whether you are likely to be able to pay back money in a timely manner. Credit Karma uses the credit reference agency TransUnion — with a maximum score of 710 — and, generally speaking, the higher your score, the more likely it is that you will qualify for more favourable terms on loans. For more on why good credit scores are important, take a look at our Help Centre for more information.
Remember your scores are just a guideline, and they can go up or down. But there is plenty you can do to maximise them, and you can start anytime. Read on for our six simple steps to set you on the right course.
Where do I start?
1. Register to vote
The simplest way to boost your scores is to get yourself on the electoral roll. This proves where you live and illustrates responsible behaviour. The longer that you’re registered at one address, the better — but remember, if you move house you need to re-register regardless of whether it’s an election year.
2. Improve your credit behaviour
We know old habits die hard, but now could be the time to get any spending in check. Aside from leaving your laptop out of the bedroom (no online shopping in the small hours!), think about how you can be more financially savvy. Make sure you stay within your credit limits and pay bills on time. If you’re in a sticky situation, contact your lender or credit card company to discuss repayment options and have a think about where you can save money. For example, you might consider switching energy suppliers.
3. Keep those credit cards in check
As we mentioned above, credit card utilisation — or how much of your available credit you’re using — is one of the factors that can affect your credit scores. If you have a lower utilisation rate — ideally below 25% — it tells lenders that you are not relying too heavily on credit.
So think about how you budget and ask yourself — honestly — “do I NEED X, Y or Z, or do I just WANT it?” There’s a big difference, and it might help to weed out unnecessary spending. And, as ever, once a bill comes in, pay it on time wherever possible.
4. How many bank accounts does one person need?
There can be some tempting offers along the high street when it comes to opening up a new bank account. But before you do so, please bear in mind that opening a new account can affect your credit scores. To stop this from happening, try not to open more than one or two new accounts in six months.
If you have several new accounts on the go, it can send out the wrong kind of message — not only that you’re credit hungry, but also that they might be the result of fraud.
5. Only borrow what you can afford
This might seem obvious, but it’s very easy to fall into the trap of borrowing more than you can afford to pay back. And as borrowers of yore will tell you, the road to ruin is paved with good intentions. If your finances start to spiral out of control and you run into serious debt or even bankruptcy, your credit scores can be in for some long-term battering. This comes in the form of “derogatory marks” caused by insolvencies, defaulted accounts or court orders and can be visible on your score for up to six years. If you’re struggling because of the coronavirus outbreak, we have some guidance that might help.
6. Look out for errors and fraudsters
Having worked hard to improve your credit scores, how frustrating would it be to see them affected by false information or fraudsters? What if your address is incorrect or a missed payment wasn’t, in fact, missed at all? Maybe that online purchase wasn’t simply a giddy mistake in the middle of the night? All these things can have a negative impact. Check your bills carefully and make sure any personal information is correct. You can usually take up discrepancies directly with lenders, so why suffer for someone else’s mistakes?
As ever, there is always something you can do to begin your journey to financial well-being, and the steps can be small and steady. Simply begin by checking out your credit scores, safe in the knowledge that anything you do to improve them may pay dividends in the future. And when that longed-for post-pandemic holiday comes along, the experience will be so much the sweeter.
