An Overview on How to Improve Credit Score

A credit rating is basically a ‘score’ given to an individual or business, in order for a lender to assess how high or low risk offering credit may be to that individual or business.

Banks and other lenders use this score to try and determine exactly how someone will behave with regard to repayments and keeping accounts up to date. This could be for a credit card, loan, mortgage, car insurance or even just a mobile phone. Every lender has differing rules when it comes to scoring credit for individuals, these rules may even vary between different products offered too. Because of this, should one lender decline an offer for credit, this does not mean another offer will not be accepted by another lender. The actual systems that are used to determine credit scores are never made public and it can be difficult to know how to go about improving an overall credit score rating.

However, by improving your credit score rating not only is the chance of obtaining credit increased, so are the benefits that come with the product or service. For example, a person with a good credit score is likely to obtain a credit card with a much lower APR than that of a person with low credit ratings.

While credit ratings differ between lenders and by those from different countries, there are certain points to look for generally in order to help improve a credit score. Some of these are listed below; however credit ratings are not an exact science so this acts as a guideline only:

Electoral role/Voting register – If you are registered to vote in the country where credit is applied for, the likelihood of a successful claim is much higher for doing so. Many lenders will decline an application on the strength of this point alone.
Number of credit applications – By applying for many products or services requiring credit in a short space of time, leaves a negative impact on a persons credit rating. Even credit searches can harm a score so it is best, if possible, to space out applications for such things as insurance and mobile phones etc.
Changing address – If a person is intending to move, it is wise to apply for any credit required pre-move. This is because by moving house credit ratings are altered.
Apply while employed – A regular pay packet will result in more successful credit applications compared to an unemployed person. If any length of unemployment or time off is predicted, apply while earnings are still being credited.
Build up good credit history – If a person has no credit history, lenders will find it hard to predict if a person is low or high risk. Therefore credit history needs to be built up. By applying for credit, ensure that the account is maintained perfectly. For example, ensure that minimum payments are always made, stay within the credit limits and never miss a payment. Bad credit may also be repaired in this way.
Keep to minimum payments – many people assume that by using pre-arranged credit and then paying the amount off in full every month is the perfect way to operate a credit card. This is incorrect. Lenders do not like customers that have a zero balance as they cannot charge interest and make money this way. Preferable customers in the eyes of lenders are those that constantly owe, are charged for late payments and pay interest. People who pay the full balance on a regular basis in fact may be refused credit in the future. Therefore, ensure that minimum repayments are made and on time as arranged by the lender. An easy way to ensure this happens is via a direct debit payment from a bank account. Missing a payment even just a couple of times can negatively affect a credit score rating.
Do not use credit searches – by requesting a lender to quote a price on a loan or other credit product by using a credit search, means that enquiry will be added to someone’s credit score which may have a negative impact. Instead request that a ‘quotation’ search is used which will yield the same result without it affecting a credit score. Unfortunately not all lenders offer this practice yet, though it is worth checking if applying for credit.
Be stable – Simple things such as being with an employer for a good period of time will help with credit scoring. This is further true if somebody is a home owner rather than tenant, employed rather than unemployed, has a home telephone line rather than just a mobile number, has been a customer of a bank for many years or have been at on address for a good period of time.
Ensure unused credit is cancelled – One single person having too much existing credit may pose a problem for future applications. Maybe an old credit card that is no longer used would not be missed? If that is cancelled for example it would lower existing risk and increase a credit rating. On the flip side of the coin – long standing bank accounts with good credit history may be advantageous to a credit score so are best left in operation.
Pay off debts with savings – Lenders are aware of existing debts and this may be negatively affecting a credit score. If any savings exist, these would be more beneficial if used towards the said debt as not only would interest not accumulate but the credit score would also improve by reducing the debt owed by that person.

The above points are general methods of helping to improve a person’s credit score rating. However it is important to learn the terms and conditions of individual lenders and also the laws governing credit in a particular country where credit is required.

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