If you’re not too familiar with your credit score and how it works, it’s worth getting to know more about it as soon as possible. Your credit score plays a huge part in some of life’s bigger financial processes, like mortgage, credit card and loan applications. It can even affect your ability to open certain bank accounts and mobile phone contracts.
So, it’s pretty important to manage, but how exactly do you go about nurturing and building your score? Everyone’s financial situation is different, however, here are three of the core starting blocks for everyone looking to boost their score.
The basics
There are two very easy ways to start making progress, and you may have done both already.
If you don’t have a UK bank account, then now is the time to open one. A bank account shows an ongoing relationship between you and your bank, verifies your residency and allows you to visibly manage your money and make payments on time — all of which positively affect your credit report.
Secondly, resister on the electoral roll if you’re not already on there. This allows lenders to verify your identity and proves you have a permanent address, which shows a level of stability. Contact your local council office if you are unsure whether you are on the register or not.
Pay in full & on time
Your utility, broadband, mobile and other household bills are an inevitability, but one that you can use to your advantage. With many providers sharing data with credit referencing agencies, being diligent with your bill payments pays in the form of an improved credit score.
Set up direct debits where possible, so you are regularly paying off your bills and avoiding forgetting a payment. Pay in full and on time, and you’ll see your score rise. Even if you are paying off a long-term loan, regular repayments will show you are working within a solid financial structure.
Of course, if you miss payments, go over your agreed limits or don’t have enough in your account to pay your direct debits, and you’ll see your score go the other way.
Credit cards: friend & foe
If you’re not an owner or user of a credit card, that’s no bad thing. Credit cards can be dangerous if used unwisely, leading to overspending and a cycle of debt – none of which are good for your credit rating. However, credit cards can also be the perfect solution to building your score, if used responsibly.
If you’re starting at the bottom, a credit builder card will help you establish yourself. Designed for those with little or no credit history, a credit builder card is a low-limit, high-interest account that offers you a powerful way to build credit. Stay well under your credit limit (your credit utilisation) with small purchases at regular intervals and pay up on time to see your score rise in the right direction.
Upon building a better score, you’ll be able to apply for better cards with better rates and perks attached. Continue regular use and repayments, and you’ll find benefits both to your credit and general spending practices.
When it comes down to it, building a reasonable credit score is fairly simple. A few basic administrative tasks combined with a sensible and considered approach to your spending and repayment habits will stand you in good stead for the future. This means you can approach life’s bigger financial questions with confidence.
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