How to build your credit score to avail a loan in the UK

Credit card payment

Are you applying for a loan in the UK? If so, chances are you have heard the term credit score or credit rating.

Be it a home mortgage, credit card or any form of a loan; a credit score will be used to determine your eligibility to gain access to the particular financial option.

And as you may have guessed already, a good credit score will open several options to help you get the best loan options. Lenders in the UK calculate your credit score based on several parameters and are likely to use credit reference agencies (CRA) like TransUnion, Equifax, Experian or others to determine your eligibility.

A good credit score allows you to gain access to financial products like personal loans, mortgages, car finance and credit cards. Higher credit scores get financial options with a higher credit limit and reasonable interest rates. So before applying for loans uk, check your credit score.

For someone who doesn’t have a credit history or wants to improve their credit score, here are a few things you can do to help you out:

Get A Credit Building Card

A good credit score gives surety to the lender that you are more likely to repay your debts, as it is based on your past behaviour. But how can a lender determine that if there is no credit history available?

You can apply for a credit-building card that is available to even those who have poor or no credit history. The cards are offered to those who usually won’t qualify for a standard credit card.

However, make sure you are making all the repayments in time. These credit cards usually charge a higher interest rate, and not paying your debt on time will impact your overall credit score. So if you opt for this method, plan your financial spending properly.

Pay Off All Your Debts

If you have already availed any financial loan in the past, it is essential to pay them all off, as lenders often view these debts as a sign of monetary issues. In some cases, having too many debt products can also be detrimental, even if you are paying your bills timely.

So make sure you clear all your existing debts before you apply for a loan. Even if these were availed a few years ago, try your best to complete any outstanding debt, and your credit score will rise significantly.

Never Miss A Deadline For Your Bills

A missed or late payment of any financial debt can stay in your file for up to six years. This means that, even though your credit score is fair, the late payments will be noticed by lenders and will impact their decision of giving you a loan.

So, in case you have any credit card or existing monthly payments to be made, manage your finances to ensure your books are clean. If things go beyond your control, check with your credit provider for better payment facilities, additional extension or even convert it to an easy payment option with some extra charges. This also applies to your utility bills like gas, electricity or telephone bills.

Sign Up For The Electoral Roll

A practice that is often ignored, adding your name to the electoral roll is a great way to increase your credit score. This is because when you are registered to vote, it is easier for lenders to confirm your identity, making it easier for you to get a loan or additional credit.

Keep Your Credit Usage Low

A big myth among credit users is that if you max out your credit card and make the payment on time, your credit score will improve instantly. However, this is far from true, as many lenders also keep track of your credit utilisation.

The credit utilisation is nothing but the amount of credit limit you use. For instance, if you are allowed a credit limit of £5,000 each month, and you don’t use over £2500, your credit utilisation is 50% or less.

Lower credit utilisation is seen as a positive sign when giving loans and will increase your credit score. The ideal credit utilisation rate is 25% or lower.

Disassociate With Old Joint Financial Partners

Do you have a joint mortgage or joint bank account with an ex-partner? Whether this person was your spouse or a business partner, if you no longer have a relationship with them, it is best to inform the CRA of your disassociation. You can do this by merely lodging a notice of disassociation with your CTA.

Make sure you follow through with this step since any financial activity of the other partner becomes linked with you. If they default, it could stop you from getting a loan or other form of credit.

Close Down Any Cards That You Are Not Using

Another long-standing myth is that having many credit cards is good for your credit score. However, if you have too many cards that are not being used, it could harm your credit rating. So whether it is a store card, credit card or any instrument with available credit that you are no longer using, it is best to close that account.

Do Not Send Multiple Applications In A Short Time Frame

If you are looking for a loan, it may seem enticing to make multiple applications at different institutions. However, this will not increase the likelihood of you getting a loan. Rather, CRAs will negatively flag your request because they don’t understand if your application was accepted or rejected.

So, instead of applying everywhere and hoping to get a loan by luck, space out your applications. If possible, try to judge the likelihood yourself by reading all the requirements to ensure you only apply where your chances of getting a loan are high.

Build Your Credit Profile With A Credit Membership

The quickest and easiest way to improve your credit rating is to get a credit membership from a credible institute. Credit membership allows you to get advance money to make payments on time or use it for other usage and doesn’t necessarily need you to borrow credit. Pay your outstanding and monthly fees on time and create a favourable credit profile.

Be A Smart Spender To Be In The Good Books!

Ultimately, your credit score is all about how you spend your money and manage your finances. For those who want to know how to build your credit score, the above tips are sure to help.

But additionally, make sure you use financial planning and manage your requirements smartly. This will help you build your credit score and secure a loan when you do need it.