Your credit score is important when it comes to loan applications. It is essentially an indication of your loan worthiness.
A high credit score is good because a potential lender will be more willing to approve your application. On the other hand, a poor credit score can attract higher interest rates or worse, get you disqualified.
According to CreditSame, a good credit score is upwards of 700, while 650 - 699 is fair. Anything below 650 is poor. Your credit score may also be checked in other instances besides a loan application.
Some landlords will check your credit score before letting a property to you, while exclusive clubs do a background check when you apply for membership.
It is safe to say that a healthy credit score is important for economic and financial success whether you intend to borrow money or not. Before applying for a loan, you can take some steps to boost your credit score. But this must be done well in advance of your application. The earlier you begin, the better.
We shall be discussing some of these steps here.
1. Register on the electoral poll
Voting is a civic responsibility. In a bid to encourage more participation, precedence is given to those who are on the voter’s list. People with an electoral presence or history are more likely to have better credit scores than citizens who are of age and without one.
If you haven’t, register here to vote online or do so by post. You might need the following; your national insurance number, your passport (for British citizens living abroad). An electoral presence indicates your standing as an upright person in society.
2. Look out for errors in your file
Some people have received a poor credit rating due to no fault of theirs. Something as simple as a wrong house address can impact your score negatively. Ensure you verify with your bank and financial records that every detail is in order.
If you have changed address or work, inform the relevant institutions so you can update them immediately. People who carry out a name change often forget to repeat same in relevant documents. If this is the case, follow up with a correction accordingly.
3. Pay your bills early
Subtle actions like paying your phone bills or utilities on time are a strong sign of how forthcoming you will be with bigger financial obligations. If you have been delaying payments, it’s time to step up your game. Financial records will reveal your history.
Another thing to consider are previous loan facilities. Have you been constantly requesting an extension? Avoid it during this period. In fact, it might be wise to paydown any outstanding loans before applying for a new one.
4. Check if your accounts are linked to another person
Joint accounts with a spouse or civil partner can affect the strength of your credit score. You might want to make sure it doesn’t count against you in any way. Sometimes, your individual records may be stellar, but a family member’s poor credit history can negate your records.
What to do? Try disconnecting your main account, or use an individual one to make an application. Conversely, if the joint account gives you an advantage, by all means, leave it that way.
5. Check for fraudulent activity
Identity theft is a common fraud that doesn’t just rob people off their savings, but their credit score too. Perform regular checks to make sure your credit score is not compromised by fraud. If something on your credit report is inaccurate, visit your bank immediately.
If someone used your information to apply for credit without your knowledge, see the credit reference agency to have it sorted quickly. Another way to correct this is to update your file periodically.
6. Pay off outstanding county court fees
Receiving any court judgements for outstanding payments will affect your credit score negatively. Don’t let your debts pile up to that extent. From parking tickets to public fines, these seemingly small issues can punch significant dents in your credit score.
If you are having trouble keeping up with debts, seek financial advice from a professional before it is too late. You want a clean state in the months leading to your loan application.
7. Eliminate any current debts
As mentioned previously, if you currently have any significant debts, try to offset them before requesting a new loan. Many banks, credit card companies and building societies are usually hesitant to grant loans to someone with a current heavy debt as it could be an indication of chronic borrowing.
Typical debts include running car loans, college debts and similar credit facilities. The only way to manage more than one facility is if you have a good track record and your credit score is rated excellent.
8. Stop moving homes frequently
How often do you move? Changing address more than twice in six months is a red flag for money lenders. Banks and building societies are more comfortable lending money to people with a permanent primary address, especially when they have lived there for a considerable period.
If you change homes too often, it’s a sign of instability which is grounds for loan disqualification. Unless it is extremely important, you might want to hold off that move for a while until you settle your finances. Otherwise, postpone your application until you have settled down permanently.
If you are having problems with improving your credit score, consider registering for a one-month free trial membership provided by the main credit company.
Consider acquiring a credit-building card
If your credit history is poor, you might want to get a credit-builder credit card. However, do note that the interest rates are significantly higher than regular credit cards. Naturally, you will be paying more than 30% interest rate per annum, so endeavour to pay off the balance completely every month.
Some credit firms advertise services to help individuals repair their credit ratings. Most times, they just end up telling you how to get your credit file and enhance your rating. But you can do that on your own without paying for it.
Be careful of spending more where it is not necessary as you want to protect your current finances.