How to Improve Your Credit Score

For one reason or another, your credit score may not be as high as you’d like. Perhaps your credit history is dotted with late payments because you were temporarily short of funds or (accidentally) a few days late on some monthly payments. Or perhaps you have a more serious default or CCJ on your credit record. Whatever the situation, there are steps you can take to improve your credit history – it just requires some discipline, time, and patience.

Before anything else, check your credit report at one or more of the UK credit reporting agencies (e.g., Equifax, Experian, or Callcredit) to see where you stand and to be aware of any errors on your record. Fixing any errors – they do happen – can go a long way towards improving your record. Once you are confident that the report is accurate, the real work begins. Here are some steps you can take to boost your credit score:

Best Ways to Improve Your Credit Score

StepsWhy is This Important?Implementation Tips
Reduce Outstanding DebtToo much debt is a sign you are overstretchedTransfer all credit card balances to a suitable Balance Transfer card, then pay down that balance ASAP!
Make Payments On TimeShows you manage your financial commitments responsiblySet up payment reminders (available on most cards)
Verify IdentificationProves you are who you say you are; Important for Fraud avoidance.Register with your current address on your local electoral roll
“Unlink” to Financial AssociatesJoint mortages, bank accounts, or loans can adversely affect your credit history, if your associate has a flawed credit reportClose any joint accounts; request the credit agencies place a Notice of Disassociation on your credit report

If you decide to take out a new credit card for bad credit with the intention of rebuilding your credit score, be sure to use the card to your advantage. That is, always pay on time and stay under the credit limit. And while you'll hear that it's crucial to make the minimum monthly payment each cycle, try to go above and beyond—by paying the whole balance each month, you can avoid interest charges which may be particularly high on a credit card for bad credit.

Should You Close Underused Credit Cards?

Keeping unused credit cards open can actually be beneficial. While you may have heard advice to close unused accounts, there are two reasons to consider keeping them open. First, length of credit history is a component in your credit report. The agencies factor in the length of time you’ve had credit accounts open and the general rule of thumb is, “The best credit is old credit.” So it can be wise to leave your oldest accounts open, even if you don’t use them much.

The second reason to keep an underused credit card open is to manage your “credit utilization” score. Credit utilization is a measure of how much you have borrowed relative to your credit limits. Lower credit utilization is better, because it indicates that you are not maxed out or strained financially – you still have room to borrow. Closing a credit account will lower the sum of your available credit limits, consequently raising your credit utilization score. Keep these points in mind when deciding which accounts to keep open, and which to close.

Why is Your Credit Score so Important?

A good credit score can open doors to a wider array of financial products and potentially lower interest rates. Often, the most rewarding credit cards are available only to those with good/excellent credit ratings. Then when you are accepted for a credit product, a better score signals you are a lower risk and is likely to translate into a lower interest rate. So, improving your credit score can directly save you money. A worthwhile investment!

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