A credit score is vital to unlocking access to a wide range of financial products, such as loans, mortgages, credit cards, mobile phones, and a host of other products. Your credit score is essentially a key that can open doors to favorable terms and better interest rates. In this post, we'll take a look at what exactly is a credit history, why it's important and share key tips on how to improve your credit score.
What is a credit history?
A credit history is a comprehensive record of your financial activities associated with credit accounts, including personal loans, credit cards, bills, and more. This record includes your:
- Payment History: Information on whether you've made payments on time, missed payments, or defaulted on any financial obligations.
- Credit Utilization: The proportion of your available credit that you're currently using, which helps assess your credit management habits.
- Credit Account Types: The various types of credit accounts you have, such as mortgages, car loans, credit cards, etc.
- Credit Inquiries: Records of recent inquiries made by lenders when you applied for credit, indicating your recent borrowing activities.
Your credit history is a crucial in determining your creditworthiness and helps lenders make a decision whether to approve your credit application. Maintaining a positive credit history is vital for achieving favorable terms and securing access to financial products.
Checking your credit history
Checking your credit history is an important step in improving your credit score. It's often overlooked, but it's a fundamental practice to stay informed about your credit score. You can assess your credit score through various platforms like Check My File, ClearScore, or Credit Karma.
The great thing is, checking your credit score won't negatively impact it. When you check your own credit score, it's considered a soft credit check, which doesn't leave any footprints on your credit history. This is often used, and you can too, to assess your eligibility before making an application.
On the other hand, a hard credit check happens when you submit a full application for credit. This does leave a footprint and one too many hard credit checks within a short amount of time can lower your credit score.
How to improve your credit score
Building and maintaining a strong credit score demands both time and patience. Fortunately, with the right strategies and tips provided below, you can accelerate and enhance your credit-building journey:
- Regularly check your credit score: You can check your credit report via platforms like Check My File, ClearScore, or Credit Karma or credit reference agencies directly such as Experian, Equifax, or TransUnion. Checking your credit report allows you to spot errors or potential issues early and address them promptly.
- Open a Credit Account: To build credit, you need credit accounts. Start by opening a basic credit card or a credit-building card. Get in the habit of using credit responsibly by making small purchases and paying your bill in full each month.
- Pay Bills on Time: Consistently paying your bills on time is one of the most critical factors that affect your credit score. Late payments can significantly damage your credit history, so set up reminders or automatic payments to ensure you never miss a payment.
- Register on the Electoral Roll: Being registered to vote at your current address can positively impact your credit score. Lenders often use this information to verify your identity, so make sure you're on the electoral roll at your current residence. You can register to vote online and the process takes no more than 10 minutes.
- Use Credit Sparingly: While having credit accounts is essential, using them wisely is equally important. Aim to keep your credit utilization low by not maxing out your credit cards. Ideally, use less than 30% of your available credit limit.
- Avoid Multiple Credit Applications: Applying for multiple credit accounts in a short period can signal financial distress and negatively impact your credit score. Space out your applications and only apply for credit when you genuinely need it.
- Build a Long Credit History: The length of your credit history matters. Avoid closing your oldest credit accounts, as they contribute positively to your credit score. The longer your credit history, the better.
- Report any errors to the referencing agencies: When you have your report, identify any errors, and contact the credit reference agencies and open a dispute. You can do this online and you'll be required to provide supporting evidence. Reviewed your credit report after the resolution to ensure any errors have been rectified.
By following the aforementioned credit score improvement tips, you'll enhance your creditworthiness, and develop responsible financial habits essential for managing your finances through different life stages. A good credit score not only secures better interest rates and loan approvals, including for mortgages, but also ensures financial stability. Your credit score is a valuable asset, so always proactively take steps to look after it.