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.
It’s important to take time to pause and reflect on our priorities, including financial priorities. Many of us have had the opportunity to consider our financial goals and make progress towards them, while others have unfortunately faced financial obstacles. Regardless of our individual circumstances, with promising prospects on the horizon, now is an opportune time to plan your steps towards a brighter financial future.
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 1000, 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 — showing a range 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 register. This proves where you live and illustrates stability, so 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 aware. 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 to a new mobile deal if it saves you on data costs.
3. Keep those credit cards in check
As we mentioned above, credit 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 current account. But before you do so, please bear in mind that opening a new current account can affect your credit scores if it has a built-in overdraft facility, even a small one. 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 — either that you’re credit hungry, or that they might be an indication 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.
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 wrong information or fraudsters? What if your address is incorrect or a missed payment wasn’t, in fact, missed at all? All these things can have a negative impact. Check your bills carefully and make sure any personal information is correct. You can take up discrepancies directly with your account providers, so why should your credit file suffer for someone else’s mistakes?
Bottom line
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. Start by checking out your credit scores, safe in the knowledge that anything you do to improve them may pay off in the future.