Whether you’ve seen it on discussed on TV or heard your friends discuss it over dinner, you may have just realized that you have something called a credit score, and the bigger your credit score is, the better.
Still, with advancements in digital technology soon, it became more widely available quickly, becoming another critical metric for people to work. Now, credit scores can be accessed in just a few minutes online. With this transparency, individuals themselves can see how small changes to their lifestyles can have a positive or negative effect on their scores.
Credit score websites, such as Credit Karma, and credit checker Apps have gamified credit checking in an attempt to drive traffic to their sites, and what used to be a straightforward measure of a lender’s trust is now displayed with bright, eye-catching colors and dynamic wheels to capture and retain a persons attention.
Regardless of the change in the way in which your credit score is now displayed, the end goal is still the same – to increase your credit score. So here’s how you can improve yours in 2020.
What is a Credit Score?
Before we get into the nitty-gritty, let’s take a quick step back to ensure that we all understand what a credit score is, because amongst all the bright colors and dynamic graphs hides some critical information. A credit score sometimes referred to as a credit rating, is a measure of the likelihood of you paying a loan or credit back>
Lenders use credit scores to assess whether they feel they can trust you to make the necessary repayments. Aside from the obvious, getting a credit card, your credit score can affect you getting a mortgage, being able to finance a car, your insurance policies, and even your mobile phone contract.
To make things even more complicated, your credit rating is calculated differently by different credit bureaus.
How You Can You Find Your Credit Score?
It’s now easier than ever to find out an estimation of your credit score through credit checker websites in which you fill out a short form detailing information about you. Remember, although these websites are a good indication of your credit rating, they often aren’t exact, and their results can vary quite significantly over time and from site to site.
Most websites use a scoring model that starts at 300 and ends at 850 though some others such as Experion score out of 999, so it’s best to check how you rank on each scoring system separately. Typically a credit score of 700 or higher is considered good however they are generally classified as follows:
- 750 – 850 is deemed to be excellent
- 700 – 749 is considered to be good
- 650 – 699 is considered to be fair*
- 600 – 649 is considered to be poor
- 300 – 599 is considered to be bad
*If your score is in the 650-699 range, read what you can do to boost your credit here.
What Can Affect Your Credit Rating?
Believe it or not, a good salary and a steady borrowing history don’t always amount to a good credit rating, and there are many factors at play which affect the final number. Here are a few things that can affect your credit rating.
Your History with Credit
Let’s get the most obvious one out of the way first, good history with confidence, and demonstrating your ability to make timely repayments reflect well on your credit rating, whereas having no history of credit or missing repayments can reflect very poorly.
Whether You Have Registered to Vote (UK)
Although registering to vote is essential for many other reasons, it can also impact your credit rating as lenders use it to verify your name and address as a precaution against fraud. Failing to register or registering at an old address can reduce your score by as much as 50 points, which may not seem like a lot but can be the difference between your application being accepted or rejected.
Missing Your Repayments
A late or missing payment can stay on your credit record for up to 3 years, impacting your score, so remember to make payments on time. Believe it or not, this also includes your mobile phone payments and your utility bill payments, with half of the big six energy providers now sharing data about the customers with credit agencies.
Applying for Too Much Credit
Submitting credit applications in quick succession can be seen as a sign of financial stress and may appear on your credit report. Lenders may see this and decide not to lend on you in case you are in financial difficulties, notably if any of your other applications were declined.
Your Partner’s Rating
If you apply for a financial product with your partner, then your financial histories become linked, which means that their score can influence yours. You may even have business ties with ex-partners who you no longer are in a relationship with.
The Amount You Spend on Your Credit Cards
The amount you spend on your credit card can be used by lenders to determine whether you rely on them.
So, How Can You Improve Your Credit Score for 2020?
Now that you know what impacts your credit rating, you can work on improving it. Improving your credit rating will increase your chance of being accepted for loans, credit cards, and mortgages and will stand you in good stead for future financial decisions. So here’s what to do.
1. Find Your Score
If you haven’t already, create an account with one of the credit check companies and find out your current score as this will give you a good benchmark to work off. Remember that your score can vary between credit agency and that their scales can vary too.
2. Register to Vote (UK)
This piece of advice may seem odd to readers in the U.S. However, if you live in the UK, registering to vote may improve your credit score.
If you aren’t currently on the electoral register, then register to vote. Be sure to use your exact name and address and to keep this up to date should you move even if you don’t plan on voting, being registered to vote matters and can affect your rating.
3. Make Sure to Meet Your Current Repayments
If you are currently using credit them be sure to set yourself reminders for your repayments and make at least the minimum payment amount each month. Prioritize the repayment of your current loans over everything else and be consistent. Just one missed payment can stay on your record for three years.
4. Don’t Pay Off Your Loans All at Once!
If you have a credit card or loan, then you may think that by racing to make early repayments, you are increasing your credit score, but this isn’t always the best strategy. The speed at which you pay off your loan doesn’t matter to the credit agencies so long as you make the minimum repayments, and in fact, lenders can make more money off you in interest if you don’t pay off your loans early.
So weigh up whether you need to pay it off early or whether you can continue to plug along with the regular repayments as this could reflect better on you as a consistent and reliable user of credit in the long run.
5. Dissolve Ties Between Ex-Partners
Your ex-partners will continue to haunt you if you don’t cut ties with their credit ratings. You can ask to have your credit ties cut by contacting the main credit agencies and merely explaining the change in your circumstances.
6. Don’t Take Out Joint Credit with Someone Who Has a Poor Rating
If you have a higher credit rating than your partner, then purchasing credit with them will bring your credit rating down. Carefully consider whether it would be better to take out credit on your own to protect your rating or work with your partner to improve their before you take out the loan.
7. Take Out One Credit Product at a Time
Although you may need more than one credit product, try to take them out one at a time over several months to not cause alarm with credit agencies who may think you are in financial distress.
8. Use Under 25% of Your Credit Limit
Maxing out your credit cards can make it look like you rely on them. To build your credit rating, try to keep your credit spending to below 25% of your overall credit maximum and remember to make the repayments on time. The lower the percentage of credit you spend on your cards, the better.
We live in a world of instant gratification, but building your credit score will likely take time. Remember that missed repayments can sit on your score for several months, and proving your reliability with money will require regular payment over the year.
So sit back and play the long game, check your score periodically throughout the year and be patient; it will grow with time.
Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.