Why do I need to achieve a good credit score? 🤔 Having a good credit score is important if you’re planning to apply for car finance because it’s among the crucial factors that finance companies and banks look into when assessing your application. If you have a high credit rating, you may even get better deals and lower interest rates. So, how do you get a good credit score to begin with? Let’s cover some of the basics first to gain a better understanding of how you can improve your score.
What’s a Credit Score?
A credit score is basically a number that corresponds to your credit history. The higher your score, the better your credit record. The score or rating is calculated using various data that relates to information from your credit history.
Lenders will then check your score and history when they’re evaluating your application for car finance, for example. They do this to determine if you are a responsible and reliable borrower.
Not all lenders have the same way of assessing applications but many of them check the applicant’s credit record and credit score. That’s why it would be beneficial for you if you can work on getting a good credit score before you apply for credit from financial institutions.
Why Do I Need to Improve My Credit Score?
From credit card applications to loans, car finance, or mortgage, your credit score and history will play a vital role. A high credit score indicates that you pay your bills on time and it’s not your habit to miss payments or default on loans. Lenders will see you as creditworthy if you have a great credit score.
Before you apply for credit, you may want to check out your score to gauge if you’ll get approved. You can do this by contacting UK credit reference agencies such as Experian, Equifax and TransUnion. It's always a good idea to check your credit score and history regularly so you can see if there are any errors or suspicious transactions under your name. Issues like this can easily affect your application if you don’t take the necessary steps to get them resolved. So, whenever you see something that’s not quite right in your history, contact the credit reference agency immediately.
Steps to Take to Get a Better Credit Score
What you have to know first is that the process of improving your credit score may take some time. It also depends on what your current score is, and your credit history. Some improvements might be seen within one month while others may take a few years. If you can maintain good spending habits and never miss due dates for payments, then you’re on your way to getting a good score. Here are other steps you can take.
Register to Vote
This step is simple yet often overlooked. If you haven’t signed up for the electoral roll, then find time to do so because it can boost your credit score. This is because registered voters will have their addresses on record. Lenders check the current and past addresses of loan applicants through the electoral roll.
Make sure that the address you provide is the same as the one you use for your credit application. If you’re already registered on the electoral roll, check if the address is correct and up to date. It’s best to get your address updated if you haven’t done so before you apply for loans or car finance.
Use Your Credit Card Responsibly
You can’t build a credit history without having credit, so make sure you use your credit card regularly but responsibly. Only borrow what you can afford to pay in full. And always check the due dates so you’ll never be late in paying what you owe.
If you can demonstrate that you can borrow responsibly and pay on time every time, then that can help in your loan application. While it’s good to use your credit card every now and then, make sure you avoid using it to withdraw cash because it’s going to cost interest and will be listed on your credit record.
Always Pay on Time
We have mentioned previously but it’s important to emphasise how crucial it is to always pay your bills on time, especially if you’re working on improving your credit score. If you’re ever late on a payment for your mortgage, loan, car finance, or credit card, it will definitely be on your credit history.
Once you have this record on your credit history, it can knock off some points on your credit score. Keep in mind that it’s not easy to build your credit rating but you can lose points fast if and when you miss payments. You may want to set up a direct debit so you can pay your bills automatically and avoid missing the due dates.
Avoid Multiple Credit Applications
Here’s another one that can negatively affect your credit score. Avoid making numerous credit applications within a short period. Remember that for every application, lenders are going to perform a hard check on your credit record and that’s going to take away a few points on your credit score each time. Now, if you make several applications, then a big chunk of your score will be taken out.
What you can do before applying for credit is work on preparing everything you need for the application. This includes all paperwork, relevant information, and of course, checking that your credit score is great so you’ll have the best chance of getting approved. If you think you can still improve your credit score, you may consider delaying your credit application until such time that you’re more confident that the lender will give you credit - and even get a better deal on the interest rate!
Improving your credit score is not an overnight process so prepare to work on it for the long run. If you’re trying to add points to a low credit score, be sure to remember the tips we’ve provided above. It will help you maintain a good credit history which will then reflect on your credit score. 😀