As a first time home buyer, the process of acquiring a home can be both exciting and nerve-wracking. If you’re planning on taking a mortgage, you need to understand what lenders look for, having...
Credit Score. The two words that can strike fear into the hearts of any would-be borrower.
Whether that borrowing is for a big purchase such as a house or a car, or even smaller everyday purchases such as a mobile phone contract, a credit check is a mandatory part of any lenders approval process, and if your credit score is not so hot, you could be left sweating as the decision comes through.
So it’s best to take steps in advance to get your credit score up to scratch. Let’s look at some ways you can actively build a better credit score and reduce your credit check anxiety.
1. Observe the terms of payment
A good credit score shows that a person is capable of paying off their debts. Consequently, lenders evaluate the viability of a person according to their payment history. By keeping all debts in the green, creditors assume that you will be effective in honouring the terms of a debt. The best way to keep your debts on the right side is by paying the debts in full, respecting the terms of payment. Delaying payments can damage your chances of growing your credit limit. If the terms of payment are after a specified duration of time, it is important to ensure that this is observed.
It is necessary to ensure that your account has enough money available and set it to auto-pay in case of an unforeseen incident or an oversight on your part which means that you are unable or forget to make the payment manually.
2. Disassociating from an ex-financial partner
Having a joint financial association like a bank account or a mortgage can negatively affect your creditworthiness. Similarly, co-signing a loan with a family member or friend directly affects the financial performance of a person, if their partner fails to observe the terms of payment. Co-signing improves the credit score of the person with the lower credit score, but can hurt your financial position severely.
Once two accounts are linked, the association remains unless a prompt to break them is initiated. Since the performance of a linked account affects the credit performance of your account, it is imperative to break outdated links with other accounts. To boost your credit score, break financial links with former economic partners. See this article from Transunion for some tips on how to make this disassociation.
3. Monitoring credit
Every credit request makes a hard search on your credit report. Hard searches which occur over a short period of time reduce the chances of increasing your credit score. Owners of accounts that fail to space their applications seem to be over-reliant on credit. As a general rule, you should not approve more than one hard search within three months if you want to grow your credit limit.
To seek and monitor the performance of your accounts, a person can do a soft enquiry. According to UK loan broker Growing Power – Soft searches don’t affect your credit score and they don’t affect the likelihood of another lender approving a different application for finance.
These soft search reports can help to show the performance of your accounts. Similarly, you can note any irregularities and correct them accordingly. If you continually monitor your credit and keep your accounts clean, you have a much better chance of improving your credit score.
4. Minimize your credit utilization
Having a high credit limit should not give you a green light to exhaustive borrowing. An account which utilizes less than 30% of its overall limit stands a better chance of improving its credit score. Lenders are intrigued by accounts with a low utilization rate. It is highly advised that you clear all outstanding debts before applying for another. Similarly, a low credit utilization rate is directly proportional to a better credit score.
5. Preserve old debt records
The credit score is highly dependent on the history of the debt payment. After paying off some loans, some people are tempted to wipe off the record from their report. However, this is not a good practice especially if you never defaulted. Good outdated debt records can help improve your credit score. Having an account with a comprehensive record is identical to a rich resume. Late payment records are wiped from the account report after seven years. Therefore, good records can water down the impact of defaulted payments if they are preserved. This article from The Balance suggests that keeping your oldest credit card open, even with a zero-balance, is a good idea to demonstrate your long-standing history with using credit responsibly.
6. Terminate unused accounts
All accounts linked to you are used to calculate your credit score even if they are dormant. Most people make the mistake of thinking that cutting up a card does it all, don’t be a victim. Visit or contact the provider and request them to close down your account. If a dormant account has a negative credit performance, it can affect the credit score of the active accounts. However, dormant accounts with good credit performance are an advantage to the overall score of active accounts.
7. Become a registered voter
Authenticity is a key factor in calculating the creditworthiness of an account. Being a registered voter confirms the identity of a person. Credit reference agency, Experian have previously disclosed that being on the electoral roll can increase your credit score by 50 points. The process of registering as a voter is straight forward, and takes a few minutes.
Having a consistent address is critical in increasing your financial performance. Be sure to regularly visit your home address as dynamic physical addresses can negatively affect your credit score.
8. Use correct updated information
Ensure that the information on the credit report is both accurate and updated. If some information needs to be updated or changed, contact the credit referencing agency for correction. Inconsistent information in your accounts can hurt your credit performance. Errors regarding the payment of debts occur, therefore, ensure that all information reflected on the report is correct. With correct, and consistent data across your accounts, you acquire your deserved credit score.