It may seem odd to have your entire creditworthiness summed up in a single number. But this is what a credit score is for. This three-digit figure will play a crucial role in your financial life.
If you’re worried about your credit score, don’t panic! Fortunately, there are plenty of simple ways to improve your score. By following these, you can boost your financial well-being.
Understanding Credit Score: What Are The Basics?
Whilst a good credit score isn’t the be-all and end-all, it can certainly help you achieve financial stability.
This is because your score is what represents your creditworthiness. It indicates how you’ve handled cash in the past and your ability to repay borrowed money. The higher your score, the better!
The most commonly used credit scoring model is the FICO score. On this scale, your credit score will range from 300 to 850. Anything over 700 is considered a good score while anything above 600 is fair. Below this, things may get a little sticky for you financially.
So, if you’re thinking you can poorly handle your money and no one will notice, think again! Credit scores make sure no one gets away with behaving badly with cash.
What Influences Your Credit Score?
Especially if you’re a recent graduate, you may be new to the world of credit.
Once you finish uni it’s time to stop splashing the cash on nights out and rounds of Jägerbombs. Instead, you need to think about building a positive credit history.
But how do you do this? Understanding what influences your credit score is the key to improving it effectively.
The primary factors that affect your credit score include:
- Credit History Length - Have you been handling credit well for a long time?
- Payment History - How is your track record of making payments on time?
- Credit Mix - Are you able to manage various types of credit accounts responsibly?
- New Credit - Have you opened multiple credit accounts within a short period?
- Credit Utilisation - Do you have a relatively low credit utilisation?
How Can You Improve Your Credit Score?
Once you understand what influences your credit score, you can go about improving it.
Luckily, there are plenty of easy and practical steps you can take to achieve this:
Establish A Positive Credit History
If you want a good score for the future, there’s no time like the present!
For those new to using credit, you’ll need to actively work to build it. A good way of doing this is by opening a credit card. Or, become an authorised user on someone else's. Start making small purchases on these cards and pay them off every month.
Pay Bills On Time
It’s hard to understate the importance of this one. If you want to show lenders your financial responsibility, is there any better evidence than a good payment record?
To achieve the very best credit score, you must always make timely payments. If you tend to be a bit of a scatterbrain, try setting up payment reminder alarms. Or, automate your bill payments to ensure they’re sent on time.
Reduce Credit Utilisation
Every credit card comes with a limit you can borrow up to. While it may be tempting to excessively borrow credit to spend on clothes and holidays, this isn’t a good idea.
Spending above, or even close to, your credit limit won’t do your credit score any favours. So, put your smart spending cap on and make sure not to splash out on your card! Instead, aim to keep below 30% of your available credit limit.
Avoid Opening Multiple Accounts
It’s important to have a diverse mix of credit. This includes things like credit cards, loans, and even a mortgage. However, it’s crucial not to open too many at the same time.
We’ve all been there. Life can get busy and you may need a couple of loans and a new credit card all at once. But it’s important to appear sensible and restrained. Only apply for credit when it’s necessary and plan ahead to make sure you can spread out your applications.
Particularly if you have just been denied a line of credit, don’t apply for another too quickly.
Regularly Check Your Report
No one likes to check up on their finances in their spare time. What a bore! But actually, it’s important to get into the habit of reviewing your credit report.
This will allow you to spot any errors that could be negatively impacting your credit score. Just make sure to do this with a soft enquiry so you don’t do any damage.
By carefully following these tricks of the credit score trade, you will be able to build it up. Of course, this will take time - a good credit score won’t appear overnight! But a little persistence can ensure you achieve a solid score in the future.
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