Take care of your credit score

What is a credit score?

Your credit score is used by lenders to judge how risky it would be to offer you credit. It’s worked out using information like your age, job and existing financial commitments. You can check your score with credit reporting agencies like Experian or Equifax.

Why is it important?

Long story short, if you don’t have a credit history, it’s hard for lenders to trust that you’ll be able pay back what you’ve borrowed. Using your credit score, they’ll judge whether you can have a phone contract, finance a car or even shop with ‘buy now, pay later’ benefits.

7 ways to stay on top of your credit

Looking after your credit is a big part of setting yourself up for plans you may have in the future. Here are some things to think about now for the benefit of later.

1. Pick the right loan type

Payday loans can be tempting, especially when you’re struggling towards the end of the month; but they stay on your credit history for six years and can affect your credit score. Before finding a lender, try and plan ahead with budgets and plans to avoid borrowing or get some advice from friends or family if you feel unsure. There are other options, such as overdrafts and standard loans that wouldn’t negatively impact your credit score as much as a payday loan. This is because some lenders view payday loans negatively, believing payday loan customers are less reliable borrowers.

2. Pre-set your payments

It’s always worth ensuring your bill payments are set up, as even one missed or late payment on bills – particularly ones in the last 12 months – can weaken your credit score and cause charges. Save yourself stress by setting up standing orders or Direct Debits for all your bills, so you never miss a payment. You can also change your payment dates so they come straight after pay day. Lots of companies offer online accounts and apps so you can check your account balances and statements easily.

3. Get rid of unused cards

For some lenders, unused store and credit cards are a big turn-off because you could choose to use all of the credit, then struggle to pay it back later. Lenders like to see that you use financial services on a regular basis; so don’t close all your credit accounts, just the ones collecting the most dust. Cutting your card isn’t enough, so be sure to get in touch with the company to close your account.

4. Don’t max out your credit card

Just as lenders don’t like it when you’ve got unused cards, they’re not keen on you using your full credit limit. Lenders look at the credit limits available to you and how much you use so keeping your credit utilisation low shows lenders that you’re in control of your credit and can manage it sensibly.

5. Make more than the minimum payment

Although the minimum payment seems like the most attractive and convenient option, it can have a negative impact on your credit score. Minimum payments only lower your balance a small amount at a time meaning it could take months or even years to reduce your balance. You’ll also pay more in interest so try to clear as much as you can each month to help improve your score.

6. Register to vote

Not only can you not vote in elections if you’re not on the electoral register, you’re also unlikely to be offered any credit from lenders. Registering takes just a matter of minutes – and remember, you’ll need to re-register if you change address.

7. Don’t sit on debt

It might seem like a good idea to have an emergency or rainy day savings fund, but if you’ve got credit card debts or a hefty overdraft, it’s smarter to prioritise those over your savings. Having too much debt hurts your credit score, so pay back what you owe before putting money into savings.