How to improve your credit score and gain financial freedom

This week we covered credit score and 5 facts you should know about it. We think this is a really fundamental topic, which everyone should be aware of. That’s why we are following up to our blog post by giving you ten tips to improve your credit score to gain financial freedom.

#1 – Check your credit report first

The first step is to actually check your credit report. This is what really matters when it comes down to scoring. The report shows all your credit history up to six years. Everything that happened seven years ago or more is not there, so don’t worry. Lenders use this information to build their own credit score. A universal one doesn’t exist and will never. If you get rejected by a lender, it’s not the end of the world.

You can get access to your credit report through the three main credit bureaus in UK: Experian, Equifax and Callcredit.

#2 – Start Reporting your Rent

Rent reporting is a tool that allows you to build your credit history by reporting your rent payments to major credit bureaus like Experian and Equifax. You can get started with rent reporting directly in the Emma App. Simply select your rent payment and Emma will report each month to Experian and Equifax! Rent reporting is a great way to improve your credit position as, unlike credit cards which can have a negative impact on your credit if you are late or miss a payment, a late or missed payment is simply not reported.

#2 – Amend any errors

After looking at your credit report, make sure that all the information is right. If you do find anything that needs correcting, contact the relevant lender and ask for an amendment. Credit bureaus can usually help you to raise a dispute on your behalf. This is really important as even small details, such as your name and address, can have a significant impact.

#3 – Start building a credit history

If you don’t have one, you need it. If you have a bad one, you need to keep building it. The whole concept about scoring people is based on the likely possibility of you not paying the lender. It’s about predicting people’s behaviour and the best way of doing this is by looking at their past. If you don’t have a past, such as a credit history, you need to start creating one. The most straightforward way to improve your credit rating is by taking out a credit card and using it wisely.

#4 – Register to vote

Make sure to register to vote at your current address. This is the simplest thing you can do. Lenders usually check the electoral roll to have a double confirmation of where you live and who you are.

#5 – Make payments on time

Missing a payment means building a bad credit history, which is definitely something you don’t want. If you have made a late payment due to mitigating circumstances, so long as you made the payment promptly when you noticed, talk to your credit provider and see if you can get this black mark removed.

This applies to late payments for utility bills like gas or electricity.

#6 – Cancel unused credit and store cards

In this case, having too much available credit, even if unused, can be a problem; for this reason, it’s best to cancel some.

credit card

#7 – Beware credit–card cash withdrawals and payday loans

These are usually seen as evidence of poor money management and can hit your credit score. There are some payday lenders that advice repaying on time can help boosting your credit score. However, this is true to a minor extent for those with already awful credit histories. In most cases it’s a bad move.

#8 – Be careful of links with someone else’s financial history

This can happen regardless of your relationship with the person. What matters is simply if you have a joint mortgage, loan, bank account and in certain rare circumstances energy bills. At the same time, other people may appear on your credit report if they are registered to vote at your address.

The link between you and them might be used when you are scored. This means if they have a bad credit history, it can show up. If you are no longer connected, you may be able to ask for them to be removed from your credit report.

#9 – Space out applications for credit products

Applying for a credit product, such as a mobile phone contract or a new credit card, leaves a ‘footprint’ on your credit report. The reason behind this is because banks want to know the people who apply for credit products and get rejected, or even those who purposely take out credit products in order to get a credit rating.

Credit agencies don’t know if you are rejected for credit, but take a note every time a credit search is made by a lender. When you are applying for credit, don’t use a scatter gun approach. Space out credit applications and try to find out if you are likely to be accepted before applying. It doesn’t make sense to apply for products unless you really need them.

#10 – Pay any outstanding County Court Judgments (CCJs) or Defaults

You should pay off a CCJ as soon as you can. If you have the ability to show you have paid off your debts – and they show as settled on your credit report – you are less likely to be unsuccessful in your future applications.

CCjs and bankruptcy stay on your file for six years. If they are about to lapse, wait until they have before making new applications.

 #11 – Discipline

Improving your credit score and building a great credit history is all about discipline; so if you are panicking right now, calm down. Figure out what you have been doing wrong and iterate. Nothing is lost and you have quite some time to work out how to start improving it from today.

The last thing we forgot to mention is student loan is not taken into account. 😉