4 key ways to improve your credit score

Having a good credit score plays a major part in your personal finances and can be the difference in you being approved or declined for a personal loan or credit card. There are a few credit score agencies out there including Experian, Clear Score and Equifax and your credit score is something you should check regularly. This article will delve into 4 ways to improve your credit score and allow you to create a future of financial efficiency.

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4 ways to improve your credit score:

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1. Sign up to a credit score agency.

As mentioned in the introduction of this article, there are many credit score agencies out there for you to choose from. Clear Score is a highly recommended agency for numerous reasons, the main reason being that it is FREE and gives a regular update so I recommend downloading the Clear Score app.

By signing up to a credit score agency, you are on the path to understanding your credit score, knowing what needs to be done and then working on other ways to improve your credit score. Signing up to a credit score agency allows you to get regular notifications of any changes to your credit report that may require urgent attention and ensures you are able to take action as soon as possible. Clear Score even goes a step further to show you your credit score vs the average score in the area you live and also vs the country as a whole. On Clear Score, the credit score is out of 1000 but this varies according to the credit score agency you sign up with.

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By signing up to a credit score agency, you are on the path to understanding your credit score, knowing what needs to be done and then working on other ways to improve your credit score.

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2. Ensure you are on the Electoral Roll.

The Electoral Roll/Register lists the name and address of everyone who is registered to vote. An annual Canvass is sent to households to check that the information held on the Roll is correct. You are simply required to ensure the names listed under that address are correct and by doing this, you are ensuring your name stays on the electoral roll.

Being on the electoral roll is a significant way to improve your credit score because you are tied to an address. By being registered at an address every year, you are showing lenders that you can be easily contacted which in turn gives lenders a good reason to provide you with a borrowing facility. See it this way, if you were approached by someone wanting to borrow some money from you but there was no record of where the person lived, would you borrow them money? This is a very simple example to show you how being on the electoral roll is a way to improve your credit score. By being on the electoral roll, you are more likely to get approved for finance, and obtaining finance and paying it back regularly and on time in turn improves your credit score.

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3. Avoid CCJs at all costs.

County Court Judgments are legal decisions handed down by County Courts which are usually of a financial nature to conclude that you owe money. These situations are entered onto the Register of Judgments, Orders and Fines and is extremely clear for credit reference agencies to browse. This can significantly impact your ability to borrow money or even open a bank account. Having a CCJ on your credit score will significantly impact your score so it is in your best interests to ensure you are regularly paying what you owe, and paying it on time. Having a CCJ suggests to lenders that you have had difficulty paying creditors in the past and naturally this will deter any new lenders from offering you a credit facility.

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A CCJ will stay on your credit file for 6 years. This is why avoiding a CCJ at all costs is a vital way to improve your credit score. You can possibly pay the CCJ immediately and it will not show on your credit profile but the payment Default will still show on your profile and is visible to credit reference agencies.

It is essential to only take out credit that you can afford to pay back. By sticking to this rule, you will ensure you are not increasing your risk of defaulting. I advise starting small and building your credit score slowly. Perhaps get a credit card with a £500 limit and pay it back regularly and on time. This will allow you to improve your credit score slowly over a couple of years, especially if you are looking to take out a mortgage in the near future.

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4. Hard searches vs Soft searches.

To improve your credit score, you need to ensure you are not signing up to too many hard searches. Hard searches are done on your credit file when you have applied for credit and are in the final stages of obtaining the credit. It is fine to have one or two hard searches on your report, preferably a few months apart. Having too many hard searches on your credit file suggests to new lenders that you have been actively looking for credit from different lenders. This can come across as you being desperate and needing credit urgently to meet obligations.

By limiting hard searches on your credit file, this improves your credit score and shows future lenders that you have not actively searched for numerous lending facilities and are not likely to be in financial difficulty.

Soft searches are more credit score friendly than hard searches. A soft search on your credit file is not visible to lenders and therefore not taken into consideration when lenders are checking your credit file. A soft search is usually a brush over of your credit file by a lender to, for example, prove who you say you are. You can easily improve your credit score by ensuring you have minimal hard searches on your credit file and soft searches have no detrimental impact.

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Credit scores are built up over a number of years so do not be downhearted if you follow these four key ways to improve your credit score but do not see any immediate progress. Your credit profile requires months, and even years, of constant on-time payments to creditors to increase your score. The higher your score the better and this means lenders are more likely to offer you credit facilities with favourable interest rates compared to someone with a lower credit score. This could have a huge impact on your personal finances if it costs you a fortune to take out a loan. Therefore improving your credit score should be high on your list of priorities.

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