With a new survey1 uncovering that 65% of Brits do not fully understand their credit score, and this figure being even higher amongst 18-25 year olds, for many, spring cleaning your finances may not feel as straight forward as it could. One of the best ways to improve your relationship with money this year is to understand what actually impacts your credit score and therefore your ability to get credit.
To help guide you through the factors involved in credit scoring, Jo Allsop, Director of Lenders at B-Corp accredited car finance specialist, Zuto, lists the six things to consider.
Jo says: “If improving your credit score is one of your goals for this year, the best place to start is understanding where you may be going wrong. If you are hoping to apply for some form of finance this year, such as car finance, improving your credit score can increase your chances of approval.
“Whilst some lenders, such as Zuto, offer options for those with previous poor credit history, such as bad credit car finance plans, it is always worthwhile taking steps to improve your score.”
- Register on the electoral roll
Jo says: “Signing up on the electoral roll is simple and quick to do, making it one of the best steps to take in improving your credit score. It’s important to also keep this up to date, ensuring you update your address whenever you move home. The electoral roll is a list of the names and addresses of people registered to vote in public elections in the UK and Northern Ireland. When you register to vote, these details are recorded on your credit report, showing how long you have lived at different points.”
- Avoid using over 30% of your credit limit
Jo warns: “Whilst credit cards offer a certain credit limit, you need to be careful with how much you lean on this each month. As frequently as you can, try to keep your credit utilisation below 30% of its overall limit. For example, if your credit card offers a limit of £1,000, if you use £500, your credit utilisation is 50% which is fairly high in the eyes of lenders.
“Having a high credit utilisation implies financial distress, that you’re reliant on credit day-to-day and are more likely to miss payments.”
- Make payments on time
Jo explains: “Whilst making current payments on time can take time to impact your score, over time this is one of the most effective ways to boost your score. These payments include credit card repayments, but also other regular payments such as phone contracts, utility bills and mortgages.
“If you have missed payments in the past, but have since become more reliable, your credit score may be less impacted than you think. Your payment history across the last six-twelve months is the most important to lenders.”
- Keep full credit applications to a minimum
Jo says: “Always avoid making multiple credit applications within a short span of time, as this signals to lenders that you rely too heavily on credit. It’s important to know that even if you’ve applied for a low amount, this could cause a problem.
“To avoid this common mistake, space your applications out if you’re wanting to give your credit score a boost this year. It’s worth noting that this is only the case for hard searches.”
- Cancel unused credit cards – or start using
Jo advises: “One of the lesser-known things that can contribute to a bad credit score is actually not using your credit card. Unused credit can have a big impact on your score without you knowing. Access to too much available credit – even if untouched – can be a red flag to lenders. Cancelling any unused cards could be one of the best ways to quickly improve your credit score in 2024.”
“Interestingly, many people often apply for credit cards but never use them due to anxiety around credit. However, simply making use of your credit allowance and proving your ability to make payments on time is one of the most effective ways to build – and improve – your credit score.”
- Financially delink
Jo suggests: “One of the most important ways to protect your credit score is to financially delink from any previous relationships. If you split up with someone you had joint finances with, you need to make sure their future credit history no longer continues to impact yours, especially if they have bad credit history.
“To do this, you can contact credit agencies and request a notice of dissociation, but also ensure you close any joint accounts and pay off any existing joint loans.”
For more information on bad credit car finance options, please visit: https://www.zuto.com/bad-credit-car-finance/
