How to Build Your Credit Score, the Do’s and Don’ts
With the advent of urbanisation and globalisation, the economy has witnessed several breakthroughs like changes in shopping trends which has consequently eased and established new modes of payment to a great extent.
A credit score, also referred to as a credit rating is one of the methods used by Credit Referring Agencies (CRAs) to check the potential of an individual in terms of money lending and crediting. These agencies are responsible for your credit scores which are emanated from your financial records and added to your credit file.
It is necessary to know how to build your credit score as it could benefit you when in need of loans, mortgages, or credit. A good credit score plays a paramount role in creating your image as a good financier in front of your lenders.
What Qualifies as a Good Credit Score?
Each CRA has a different credit score requirement according to their respective systems and methods.
- Transunion defines 4 as a good rate from an overall 5
- Experian defines 880 as a good rate from an overall 900
- Equifax defines 420 as a good rate from an overall 700
In the UK, these are the 3 main Credit Referring Agencies that store all of your credit information and history to create specific credit report for you. These reports contain given ratings or scores based on the defined parameters.
How to Build Your Credit Score?
If you are not able to obtain a loan or partake in other credit borrowing activities, it is beneficial to know how to build your credit score. Although this might seem like it’s beyond your reach, there are a few factors that can improve your credit score as listed below.
Prove Your Identity By Registering On Electoral Roll
The first step of how to build your credit score is by registering yourself on the electoral roll (which can be done online). This, in turn, will prove your identity and verify your address. Some agencies give you a bonus in your credit score solely for the purpose of having yourself registered.
Make Your Particulars Errorless
Go through your credit file to look for faulty areas or for any details that needs to be corrected. Changed address, phone numbers, etc should be updated on time. Contact your lender to change or correct the mistakes in the information you have provided.
Do not neglect any mistakes on your credit file as it will show a sign of casualty and unprofessionalism in terms of your financial activities and will make it seem that you are less reliable person.
Monitor Payments That Seem Fraudulent
It is necessary for you to always look out for deceitful activity in your credit file. If you see any suspicious payment or credit taken which lacks your approval, contact your CRA soon and let them know. In this way, your money lenders won’t roll down your numbers unnecessarily, when going about how to build your credit score.
Settle Your Debts Before It’s Too Late
Making your payments on time and settling debts is the best way to delineate loyalty to your granter. Keep a track of all your pending payments and maintain punctuality in your credit file.
Another important thing in how to build your credit score is that late payments are shown on your credit reports for up to 6 years. It is better to pay back the loan amount on time rather than to have these bad remarks on your report which can directly affect your credit score.
Remove Ex-Partners Or Relatives from your Bank Account
Having a joint account may affect your credit score adversely. If the person with whom you hold the joint account has a low credit score, there is a chance that your lender might notice and reduce your credit rating too. When going about how to build your credit score, if you have a joint account, your partner’s ability to repay might affect yours as well.
Retaining A Healthy Credit Background
When learning how to build your credit score, always remember that honesty is the key. Proving your trustworthiness is not a one-time task, you will need to be reliable for the entire time until you repay the loan amount. From the first payment to the last, punctuality has to be maintained.
Stay Within The Credit Limit
To get a good credit score, manage to pay within your boundaries. The lesser you exhaust your credit limit, the higher your credit score will be. 25% usage of your credit limit is considered good and reliable. Lenders not only see your history but also your available credit.
Make Sure Your Lenders Remove The Black Mark
Any failure to clear outstanding loans or debts will cost you as lenders will perceive you as a defaulter and a County Court Judgment (CCJ) can be filed against you in the case of forgotten payments. Under such circumstances, you are usually provided 30 days to repay the amount due. If the amount is paid off within 30 days, the lender cannot add the CCJ complaint to your credit file.
Why do You Have a Low Credit Score?
Even the people who make payments regularly could end up having low credit scores as well. This could be possible due to the following listed below.
- You are not registered as a voter. This may perceive you to be an unreliable citizen because of your non-verified address and identity.
- You have only one credit card and have exceeded the credit limit for that card while making payments.
- You are still in an association with an ex-business partner or relative with a low credit score.
- Your CCJ mark has not been removed by your lender even after 6 years.
- You have blundered in the personal information section of your credit report.
- You have applied for a new credit card or loan recently. Having more than one credit application can result in the unreliability of timely payments.
When going about how to build your credit score, remember that the higher your credit score is, the more easily will you be sanctioned for loans in the future.