Applying for loans can be stressful, especially if you have a low credit score. Whether you’re applying for car finance, a mortgage, credit card, personal loan or any other type of credit, you’ll usually need a good credit score to be accepted for a loan.
If you’ve ever been refused car finance in the past or any other type of loan, you’ll know how disheartening it can be. Your best chance of being accepted for different types of loans is to increase your credit score. There are a few easy ways in which you can increase your credit score.
Check your credit file
The first thing you should do before you apply for any sort of loan is check your credit file. Before you can start rebuilding your credit score you should know where you stand. It can also be surprising if you don’t know how good or bad your credit is. You can use an online credit reference agency such as Equifax, Experian or Credit Karma to check your credit file for free.
On your credit file, you will get access to a credit score, personal details, a list of your credit accounts, any financial partners, public record information such as County Court Judgements, electoral roll information and previous/current addresses. All of this information can be viewed by yourself and is sometimes available to some potential lenders, depending on the type of search they provide on your credit file.
Improve your credit score
Register on the electoral roll
Many people don’t know that this is an easy way to increase your credit score. In the UK, the electoral roll is an official list of people in a certain area who are entitled to vote in an election. Even if you don’t care about voting, being registered on the electoral roll can increase your credit score. This information is provided on your credit file and lenders use this info to very that you are who you say you are and your current address. Lenders tend to favour people who don’t move around as much so this can strengthen your applications.
Pay all your bills on time
This may seem simple, but it can be quite hard if you have had trouble in the past making repayments on time. However, even a few months’ worth off meeting all your financial deadlines can increase your credit score. Your credit score is all about future predictions, so showing evidence to potential lenders that you are a responsible borrower can work in your favour. If you struggle making repayments, why not set up direct debits for the day after you get paid or use payment reminders on your phone or calendar? You should also try to make your payments in full as making the minimum payment requested on credit cards or store cards may indicate to lenders that you are struggling to handle your current credit.
Check your file for mistakes
As mentioned, the first thing you should do is check your credit file. When you check your file, you should make sure all your information listed is accurate and up to date. Even an incorrect address history or spelling mistake can affect your credit score. You should also look for any fraudulent activity. If you suspect any fraudulent activity, you should contact your credit reference agency as soon as possible. Your identity could be used to build up debt which you will be liable for. You should also ask the credit reference agency to make a note of any corrections on your credit file to make it clear that the activity was not your fault.
Check for any financial partners
You can take out joint credit with other trusted partners to strengthen your credit applications. For example, many people who are search for bad credit car finance many be worried about being accepted so providing a joint application can increase your chances of being approved. If you have taken out credit in the past with someone as a joint application, you may still be financially linked. If you no longer have an open application with someone else, it’s best to disassociate yourself. If your financial partner has credit difficulties, this can also drag your score down too. You should contact the credit reference agency to make a note of the dissociations on your credit file.
Keep your credit utilisation low
When you take out credit, you will have a credit utilisation which is the amount of available credit which you actually use. For example, if your available credit is £1,000 and you’ve used £500, this means your credit utilisation ration is 50% Usually using less of your available credit can be seen a positive thing to lenders. As a general rule of thumb, you should only use around 30% of your available credit. This indicates to lenders that you are responsible with the money you have borrowed.
Don’t make multiple credit applications
When you apply for any sort of credit, potential lenders will usually check your credit file. If you are shopping around for the best loans, it’s best to stick to companies who only provide a soft search on your file. A soft search is recorded on your credit file but won’t affect your credit score and isn’t visible to lenders. A hard search however is recorded on your credit file so lenders will be able to see when you have been declined for credit. Multiple hard searched in a short space of time can lower your credit score and affect your chances of being approved for loans.
Consider a credit building card
If you have a low credit score because you have no credit history, you could consider a credit building card. A credit building card is designed for people who have little or no credit and can also help people with bad credit. You can use these cards to make a few payments each month and then pay them back on time and in full, this can provide strong evidence that you are able to make your repayments. However, you should only consider a credit building card if you are confident you can make your payments on time. Never take out a credit building card if you are unsure about repayments as this may result in more debt if you can’t keep on top of your payments.
