A new year is a great time to get on track with your finances. It’s time to review your budget, think about your savings and financial needs for the future. You may be planning big financial purchases, such as buying a house, if so you’re likely planning to take out a mortgage. If you know that you’re going to be applying for a mortgage in the near future it’s a good idea to check your credit rating now so if you find you have bad credit or no credit you have plenty of time to build up your credit rating. Take a look at five ways to improve your credit score:
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Check Your Current Credit Report
To begin, check your current credit report. You can request your report for free from a credit check site such as Experian, Equifax, TransUnion or Clearscore. A credit report is a record of information about your credit history. It shows how you’ve handled credit in the past and it allows lenders to assess your level of risk when you apply for credit. For more information take a look at the Credit Score Guide on Cash Lady.
2. Make Sure Your Information is Correct
Make sure that all your information is correct. If you find any anomalies on the report query them and tell the credit bureau what information you believe is inaccurate. Make sure you’re on the electoral roll- local authorities send this information to credit agencies and it will ensure your name and address are up to date. Being on the electoral roll can increase your score by 50 points as it’s seen as a sign of stability.
3. Pay ALL Bills on Time
Lenders want to see that you’re good at paying back money regularly and on time so show them that you pay your bills. An easy way to ensure this is to make sure all your bills are paid by direct debit. If you think you might not be able to make a payment, talk to your creditor, as they may be able to arrange a repayment plan that helps you avoid a big black mark. Late payments and defaults on your bills can mean a gas electric or phone provider may send your account to a collection agency that could forward the information to one or more of the credit bureaus. Once you get back on track again your credit score will increase.
4. Manage any Current Debt
Don’t panic if you have current debt. As long as it’s being managed it doesn’t have to be a cause of concern. Prioritise your debts and begin to pay them off. If you’re struggling to pay them off you could consider a Debt Management Plan (DMP). However, please remember that getting a DMP will usually lower your credit score initially. This is because you’ll be paying less than the originally agreed amount, which will be shown on your credit report. Reduced payments are a sign that you may be having difficulty repaying what you owe, so lenders may see you as high-risk. So, if you apply to borrow money while you’re on a DMP, lenders may reject your application or charge you higher interest rates. However if it helps you out of debt it will be worth it in the end.
5. Open a Credit Card Account
Some home buyers find that they have no credit history when they come to apply for a mortgage. To avoid this happening, it can be a good idea to take out a credit card even if you don’t feel you need to. To begin building your credit rating, apply for a credit card and make sure you repay the balance in full every month. It will take a few months, but over time your credit rating will improve. One obvious sign of a growing credit score is when the bank offers to extend your credit limit. However, you need to have self control with your first credit card. Make small purchases and pay them off in full straight away. Keep the majority of the credit free. If you borrow more than 30% of the limit your credit rating could drop. So, on a credit card with a £1000 limit, try to keep your balance below £300 and remember to pay off in full as soon as you can to avoid high interest.
It can take time to increase your credit rating so try to plan ahead. If you are planning to take out a mortgage remember to put aside money to save for your deposit too. It’s a marathon rather than a sprint but having a good credit score and your own home will be worth it in the long run.
Excellent – i m well on track – pays to be on the ball
Good advice and the New Year is the perfect time to get on top of financial plans.