How to Get a Good Credit Score
Why do you need a good credit score when applying for a loan? 🤔 Having a favourable credit score is important if you want to have the best chance of getting credit. It’s among the crucial factors lenders look for when assessing your application. If you have a high credit rating, you may even get better deals and access to lower interest rates. So, how do you get a good credit score to begin with? Let’s cover some of the basics first to better understand 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 related to your credit history information. For example, lenders will then check your score and history when evaluating your car finance application. 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 check the applicant’s credit record and credit score. That’s why it would be beneficial for you if you work on getting a good credit score before you apply for credit from lenders, banks, and financing companies.
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 applying for credit, you may want to check out your score to gauge your approval. You can contact UK credit reference agencies such as Experian, Equifax and TransUnion. It's always a good idea to check your credit score and history regularly to 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 resolve them. 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 payment due dates, 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, 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 loan applicants' current and past addresses through the electoral roll.
Ensure that the address you provide is the same as the one you use for your credit application. If you’ve already registered on the electoral roll, check if the address is correct and up to date. It’s best to update your address if you haven’t done so before applying 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 paying what you owe.
If you demonstrate that you can borrow responsibly and pay on time every time, that can help in your loan application. While it’s good to use your credit card occasionally, avoid using it to withdraw cash because it will cost interest and be listed on your credit record.
Always Pay on Time
We have mentioned this 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 recorded in your credit history.
Late payments can knock off some points on your credit score. Remember 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 to 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, a big chunk of your score will be removed, and lenders might see this as a red flag that you're desperate to get a loan.
Does car finance improve your credit score?
Yes. Getting a loan can help increase your credit score, but only if you pay the lender back on time each month. Having a good credit score involves being a responsible borrower, and one way to prove that you can handle money is by having finance and comfortably making each monthly payment. In turn, your credit score should improve over time. If you fail to make payments, you can expect your score to go down, making it harder to get credit in the future.
Can I get car finance with a low credit score?
Yes. You can still get financing even if you have a low credit score. However, be ready to pay more because it's more likely that you will be offered a financing deal with a higher interest rate. This is because people with low credit scores have not yet proven themselves to be good borrowers. Some borrowers with low credit scores hire brokers to process their applications. Car finance brokers may be able to help you find a finance company that accepts borrowers with low credit scores. Just bear in mind that hiring a finance broker will be an extra expense.
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 checking that your credit score is great so you’ll have the best chance of getting approved. Improving your credit score is not an overnight process so prepare to work on it for the long run.
If you think you can still work on 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. Doing so might even help you finance your next car with Carmoola and get a better deal on the interest rate! 😀