It is hard to improve your credit score but it is possible. It does not happen overnight but making important changes can significantly help your chances of being approved for financial products including payday loans.
There are many ways you can begin to build your credit score back up. In this article, Dollar Hand will run through some steps you can take to make concrete improvements to your credit score.
- Your credit score can improve by paying off debts and credit cards on-time.
- You can build up your credit score – working on it means it will go up.
- Paying off your debts and settling any significant loans is a good start to improving your credit score.
- Things such as registering to vote can improve your credit score and it’s free!
- Close down any credit cards that you do not use.
- Avoid making too many applications for loans quickly, since this can cause lenders to think you are a liability.
Why is Your Credit Score Important?
When you’re submitting a form for a loan, mortgage, credit card or a mobile phone contract, your credit score is one of the most important things providers will take into account. A credit score gives an indication of how well you have paid other types of credit and financial obligations in the past.
A credit score is based on a numerical value, where the higher your score, the better your credit rating is – and this number is made up of multiple factors. Having a higher credit score will make you more likely to be approved for loans, credit cards etc…
What Are The Components Of A Credit Score?
Before diving into improvement strategies, it is essential to understand the factors that contribute to your credit score. The most commonly used credit scoring model considers 5 key components:
1) Payment History (35%):
Your track record of making on-time payments on credit accounts, including loans, credit cards and mortgages.
2) Credit Utilization (30%):
The ratio of your credit card balances to your credit limits. A lower utilization rate is generally better for your credit score.
3) Length of Credit History (15%):
The length of time your credit accounts have been open. A longer credit history can have a positive impact on your score.
4) Types of Credit in Use (10%):
The variety of credit accounts you have, including credit cards, installment loans and mortgages.
5) New Credit (10%):
The number of recently opened credit accounts and inquiries into your credit history. Opening multiple new accounts in a short period can damage your credit score.
How Do You Improve Your Credit Score?
To improve your credit score, you need to show that you can make payments for things on time, such as your cell phone, credit cards and other loans. You automatically start with a zero credit score when you turn 18 and this will go up if you make payments on time, but every time you miss a payment on a credit card or loan and default, this will start to have a negative impact and make your credit score go down.
To improve your credit score you should start spending and get used to making payments on time. This is a good exercise to show that you can handle credit and paying on-time, regularly and for a long period, will build up your credit score nicely.
If you have lots of existing debts, cards and loans, you need to find a way to pay them off. You could look at a larger debt consolidation loan or take time to come up with a plan to really pay each one off or get up to date with payments.
If you make a budget and keep to it, so that you could be debt free in 3, 6 or 12 months, this could be a powerful solution to build up your credit score.
Join The Electoral Register
The electoral register is a record of your name and personal information that can improve your credit. Registering to vote creates an account of your name, address and date of birth that lenders can use to confirm your identity.
This helps your chances of being approved by lenders and it instantly improves your credit score because it confirms your name, date of birth and address – and its free to do so! You can register to vote here.
Control Your Utilisation Rate
A utilisation rate is a percentage which shows a lender how much credit you use compared to how much you are able to. This shows a lender that you’re not using credit irresponsibly.
For example, if you have a credit card that allows you to borrow $1000 per month and you use it for $100, your utilisation rate would be 10%. Some credit rating agencies suggest that you keep your utilisation rate at around 30%. This shows that you’re a responsible borrower who keeps up with repayments and can improve your credit score dramatically.
Close Down Any Unused Credit Cards
Having too many credit cards does not look good on your credit score – since lenders think that you have access to a lot of cash and could use it at any point.
If you have access to a lot of credit but have a small salary it means that lenders will likely stay clear of you and your credit score could be negatively impacted. So if there are cards that you don’t need, just pay them off or close them altogether.
Avoid Applying for Too Many Loans In A Short Space Of Time
If you apply for lots of credit cards or loans in a short space of time, this could negatively impact your credit score. This information will be recorded by a credit reference bureau and your credit score will be adjusted to reflect this risk to other lenders too.
Dollar Hand can help. We are a loans connection service, so we will match your loan enquiry with the lender most likely to approve your application and offer you the best terms. More importantly, our checks do not affect your credit score, so you can apply as many times as you would like!
If you’re looking to make immediate changes, implementing these methods is a great place to start but you’ll have to be patient!
Building your credit score is an investment into your financial wellbeing. By understanding the factors that influence your score and implementing responsible financial habits, you can gradually enhance your creditworthiness and open doors to better borrowing terms, lower interest rates and improved financial stability.
Whether you are trying to build your credit score from scratch or are repairing a less-than-perfect score, consistency, discipline and education are key. The journey to a better credit score is a marathon, not a sprint. By prioritizing timely payments, reducing credit card balances and diversifying your credit mix, you will be on the way to achieving a higher credit score and unlocking the benefits of a healthier financial future.
Justine is a full-time writer with lots of expertise and a wealth of experience in the financial world. In particular, she specializes in household income and consumer finance across the United States. Follow her articles for useful advice and top tips, guides on how to save money and lots more.