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How To Increase Your Credit Score

Your credit score is what an organisation perceives as your financial credibility

By Lanu PitanPublished 3 years ago 5 min read
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Clker-free-Vector-image-from pixabay.com

You might wonder, why you need a credit for anyway. I used to think like that because I hate to owe, and with huge interest rates prevailing, it doesn't make sense for me to borrow. 

A credit score is a mathematical model, used by lenders to determine your credibility in paying back what you borrowed.

Why Your Credit Score Is Important?

Your credit score is important because it is practically impossible not to have to borrow these days, for an ordinary person like you and me. And it affects how one's financial responsibility throughout one's life. Let us think about mortgages for instance, which is likely to be one of the highest forms of borrowing we will have. A higher credit score will influence our chances of getting the loan, and what the interest rate we will get, that is, expensive or cheap. This is because our credit score indicates being able to pay back with ease. 

Paying back with ease is what the lenders want, and what will determine their readiness to borrow you money.

What Data Appears On A Typical Credit Report?

Public Records - This include your current address, if within the last three years, and your previous addresses, up to the last seven years. The number of previous addresses varies from a credit agency to another, or from one country to another, depending on the law. It will also include any county court judgement, bankruptcy and insolvencies claim on you, as an individual or as a director, or partnership, or any other business dealing you are involved in.

Financial Credit Agreements - These include details of your mortgages, personal loans, overdrafts, credit cards. The year each loan was taken out, the tenure, the repayments, and whether you have missed any repayment or not.

Your Financial Associates - Are those whom you hold joint financial dealings together, either on a personal basis or as a direct or corporate association with others. The details, and or the percentage share of your dealing is shown here.

What Factors Influence Your Credit Score?

Public Record- What information the public records hold about you. Records about registering to vote, and or County Court Judgement (CCJ). This is about whether you have at any time being declared bankrupt, and have been unable to settle a loan. When you register to vote, and how soon you have moved house within a short space of time. The lender usually will go to court to obtain a county court judgement against you, to protect himself in case the remainder of your assets are going to be distributed to creditors pro-rata. 

Credit Searches - Here in the UK, there is always searches on your credit report each time you apply for a loan, credit cards and or phone contract. The more searches you have within a short space of time, the more it is believed you have applied for a credit facility, and may negatively impact on your credit report. And the result of the search will also be displayed on your record. So try to limit the number of credit facility you apply for.

Payment History - How good are you in meeting your repayment? Paying your instalments promptly and on time greatly enhances your credit report. The report also maintains records of default and late payments.

Credit Utilization - How much of your available credit you use? Most people overlook this, but it does have an effect. Your utilization of the available facility should not exceed 30%. Ideally, you should pay back a substantial amount of your balance on the due date to escape their interest charges. The ideal credit utilization on any of your credit card balance should be between 10–15%.

Who Are Your Financial Associates?- These are those you hold joint financial dealings with. For example, if you hold a mortgage in a joint name, let's say with your spouse. A separate credit report of this person will also affect your own credit rating. If you have a second credit card user, etc, their credit report is vital to your own as well.

Three Simple Ways To Improve Your Credit Score Rating

Ensure your name is on Voters' Register - Having your name on the electoral register is massive in improving your credit rating. According to a Credit Expert, EXPERIAN, having your name on an electoral register can boost your rating by up to 50%.

Have at least two lines of credit - There is a need to maintain active lines of credit, mortgages, loans, credit cards, and contract phones. You need to pay on time, and not miss any payment. A good way to ensure bills are paid on time is to set up a direct debit payment with your bank, as this ensures payments are made as to when due.

Check Your Credit Report Regularly - This is to ensure your report contains only that which pertains to you. Fraud rate is high and unknown to you, your credit report might have been infiltrated. Some companies charge for this, while some do it for free.

What Is An Ideal Credit Rating? 

The topmost rating is 999, while zero is the least. An ideal credit rating is 800 and above. It is usually based on a thousand (1000), so any rating of 800 and above is good enough.

How Credit Agencies Build Up Their Records About You

Credit Agencies build up their records on all the applications you made in the past applications, as well as the current application you are making. They basically look for any discrepancies and determine whether it is worth giving you their fund.

There are organisations that do this for them, and they too have their own data on you. One such organisation in the UK is National Hunters.

Another organisation, CIFAS have a list of all past frauds, and simply look out for your name if you make any fresh application. CIFAS has its own national fraud database.

The Take-Aways

Your credit score is an important aspect of your financial planning. It determines how easily and cheaply you are able to access credit, should you need to.

There are important steps you can take to improve on your credit score.

The financial responsibility of others you are connected with, like your spouse, and or business associates, affect your own credit score.

People with a higher credit score is perceived as a low risk, and less likely to default. This affects all line of credit as well as insurance premiums.

personal finance
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About the Creator

Lanu Pitan

An avid reader first and foremost. A lover of Nature, as Nature is the language of God. Love is all that the law demands.

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