Improving your credit rating is not as hard as you would think but it requires discipline and a plan. When I first signed up to Experian my credit score was below average. Being a student, and maybe not having a part-time job, a good credit score can be something easily overlooked. Once you graduate and leave university, your credit score will become ever more increasingly important. Especially, if you have ambitions of starting and growing a business.
What is my credit score and why is it important?
A credit score is a measure of how well you handle debt. This may be to repaying your student loan debt, to a household mortgage. If you have a phone contract in your name, your credit score would have been taken into account before you were approved to take out the contract. This is an example of why having a good credit score is important. If you have a poor credit score you will find getting phone bills, mortgages, and loans from banks difficult. Or you will have to pay a higher level of interest, compared to a peer with a higher credit score.
Okay, I’m interested and get it, where do I start?
First things first, you need to have an understanding of where your credit score is currently. Sign up to the following two websites, enter your details and find out what your credit score is currently.
CleareScore HERE: www.clearscore.com
Experian HERE: www.experian.com
Once you have done this, the next steps you take are paramount. Having received your credit score, and assuming you are a student, there a few ways to start making it climb. In terms of practical steps, you can follow these 5 steps. They are in increasing order of how much they build your score, but come with increased risks.
The steps I personally took.
- Sign on to the electoral roll.
Signing on to the electoral should be your first step to improving your credit score. Why? Because it’s quick easy and will increase your credit score almost instantly. From a creditor’s point of view, it is a basic requirement. If debts are owned creditors can access the electoral roll, and know you have a residence of which they can locate you. Not being on the electoral roll will put an automatic cap on your credit score.
- Take responsibility for necessities.
Parent’s still paying your phone contract? Bills not being paid by you? Gone over your overdraft limit? These are just 3 examples of things that need to change and you need to start paying for in your name. Even if it is a case where you can negotiate that the contract is in your name, and your parents pay the money to you, this will be more beneficial than not paying it at all. Creditors take into account how well you pay your necessities before your non-essentials. Not paying your phone contract, paying your household bills etc, will show up in any report run in your name, and will take points off your score.
- Start to take out manageable direct debits.
Next, you want to start looking at direct debits. Signing up to direct debits, large or small, and making sure you pay them on time, is a good sign of how trustworthy you are. Examples that I started included my car insurance, road tax, and a cinema membership card. These are just a few examples, but it can really be anything that is of value. The key thing to do here is to plan and manage your finances, so that you don’t have to cancel these direct debits within a few months.
- Credit card
If you have done the steps above, the next step that will truly increase your credit score exponentially is to get a credit card. The best way to go about doing so, I found, is to use ClearScore’s improve credit page. It gives you a likelihood of being approved for different credit cards. CAUTION. Don’t go for names, but the credit card that is most likely to approve you. I initially went for Barclays, which ClearScore estimated I had an 80% chance of being approved. I was part of the 20% and this had a negative effect on my credit score. I followed this up by going for CapitalOne’s credit card and can say I have had 0 complaints. It has a very good app which you can use to track payments. I am going to be follow up article on credit cards, what they are, the do’s and dont’s, soon so look out for that coming soon.
- Trust the process!
When you go from no credit history to low credit history your score may go down, but do not worry! If you manage your credit well and trust the process, your score will increase. What you must now exercise it patience!
Any further questions?
Feel free to email me or get in contact with me via the contact section of the website!