Whenever you want to apply for a loan or other forms of credit, or even a mortgage or credit card, your chance of acceptance depends on several factors. One of these factors is your employment status, others are your earnings, expenditures, and personal details. However, one of the most important things they consider is your credit score, which shows how you have behaved in the past toward borrowing and repaying loans.
What is a credit score?
A credit score is calculated whenever you take a loan or apply for credit. A credit reference agency puts a report together, and the report assesses whether or not it’s a risk to lend money to you. The report will depend on whether or not you returned past loans when due. Different agencies set their credit loan scores, but it is a wide range between 0 and 999.
Factors that contribute to a low credit score
There are several reasons why you might have a low credit score. Let’s look at a few of them:
Your credit score is negatively affected whenever you borrow money and don’t pay it back when you should. Defaulting on loans, missing payments, or having arrears will give you a poor credit score.
County Court Judgments/Individual voluntary arrangements
If you have had to enter into an individual voluntary arrangement because of bankruptcy or you have been on the end of a County Court Judgment, your credit score will be very low.
Absence of credit score/history
Apart from these two listed earlier, another factor that can affect your credit rate is the absence of credit activity. If you have never received credit before, the agency won’t know how to rate you, which might give you an uncertain score.
How to boost your credit score
The method of boosting your credit score will depend on the reason the score is low in the first place. But here are some tips.
- If your score is low because you have no credit history, then you need to take credit and pay it off immediately or within a short time. You can get a credit card, make a few purchases, and pay back immediately. It gives the agency something positive to work with.
- For a poor credit history due to personal details, the first thing you can do is to prove your location by registering on the electoral roll at your home address.
- For late payments, ensure to make all your payments on time and complete every month over a period to prove that you are responsible for credit. Well-managed accounts improve your score a lot, advised bySuits me, an award-winning e-account and debit card solution with a cashback reward scheme when you use your debit card in certain retailers.
- Maintaining a low credit utilization is another way to improve your score. Credit utilization refers to the percentage of your credit limit that you use. Always avoid using too much of your credit limit. Keep it at 30% or less because a lower utilization percentage gives you a positive standing in the sight of the lender.