Having a good credit score not only gives you a wide range of choice when applying for credit facilities but also increases your chances of getting better credit terms such as lower rates. Having said that, credit scores are not built overnight. You require a tried-and-true strategy layered with a consistent effort.
COVID-19 may have upended lots of things including livelihoods and the access individuals have had to loan products and credit cards. Lenders are much more careful on who they lend to and the size of credit they approve. This means that getting a loan during the pandemic is many times harder compared to pre-pandemic times. The resulting loans defaults, deferrals, and restructurings have worsened then overall borrower risk profile.
One of the few options left for borrowers in need of quick approvals is bad credit loans. Lenders of these facilities can give you anything from £3000 to £25,000 with your cash credited the following working day.
Why the Lockdown Is a Good Time to Improve Your Credit Score
Even though lockdowns are associated with lost incomes and economic distress, they also present an opportune moment to reflect on your credit history. For instance, with travelling minimised and people working from home, you can afford to put aside some savings that you can use to pay up your debt on time or even above the minimum monthly payments.
You could also cut back on eating out by cooking at home as you squirrel away some of the cash you would have spent and using it towards debt repayment.
However, before you go into all that, you need to first understand where you are at in terms of your credit score. For instance, if your credit score is low, find out the specific circumstances that have contributed to that. This will give you the first opportunity to quickly enhance it.
To start you off on the path to increasing your credit score, here are some useful and easy to implement tips to consider.
1. Pay Down Your Debt Balances
Credit scoring models such as FICO and VantageScore distinguish between different types of debts. In other words, not all debts are equal.
For instance, revolving debt and instalment loans make up a significant share of your credit score, about 10%, while facilities such as payday loans may not affect your credit score much as long as you ay in time. However, this doesn’t mean that they are any safe. In fact, payday loans can get you stuck into a debt cycle.
Having larger amounts of these debts not only reduces your credit utilisation score but also increases your likelihood of default. The impact of this risk on your credit score can be devastating.
The best and easy approach is to ensure you don’t miss out on the minimum payments but if you can, pay more and chip away at your revolving debt.
As your creditors report on your debt repayments, your score will improve. For instance, most credit card companies report loan repayments monthly, but you may find others reporting within days. You can call or chat your card issuer to find out their reporting frequency. For the biggest and fastest impact on your debt, pay off your balance all at once if you can.
2. Check Your Credit Report for Errors
Improving your credit report doesn’t always cost you money. Something as simple as requesting your credit report and checking through it for any errors can increase your credit score.
The good news is that during a lockdown you have a little more time on your hands to go through your report in one sitting. Some of the errors to look out for include:
- Personal Information Errors: Name and address errors can occur following a change of name or address or a delay on the part of credit reference agencies (CRAs) to update accordingly.
- Account Detail Errors: Check for accounts appearing on your credit report that may not be yours. Next is to check the account balances for every account and confirm that they are accurate as per your records. Check for misrepresented credit limits as this affects your credit utilisation ratio and credit score.
- Account reporting errors: Accounts that have since been closed by lenders may appear open on your report. Also, timely account payments may be shown as late payments and this further leads to a deterioration of your score.
You can dispute errors appearing on your credit report by submitting an investigation request to the credit reference agency. The CRA will take up the dispute with the creditor and resolve the issue.
3. Increase your credit limit
Increasing your credit limit is a clever way of boosting your credit score. You can do this either by requesting a new card or asking for a credit limit increase on your current card.
The effect this has is that it increases your credit utilisation ratio. Meaning you have more credit available for use even if you don’t necessarily use it. However, be cautious about your spending behaviour and resist any temptation to spend more than you can afford.
When you decide to apply for a new card, ensure you do your homework well because every application you make impacts your credit score. Card lenders or issuers pull your credit report every time you apply, and this results in what is called a hard enquiry. Believe it or not, it dings your credit score a few points.
If you need cash quickly and your credit score is still low, you may want to approach bad credit loans lenders for either personal loans or guarantor loans of up to £25,000. This may save you the struggle of having to apply for new cards or credit limit extensions.
4. Keep Tabs on Your Old Accounts
If you have any old accounts especially those with unused credit, ensure you keep track of them. Lenders don’t usually like it when you have such unused credits because they assume that you may all of a sudden decide to utilise the credit and then struggle to pay up.
Reviewing your old accounts and closing those you no longer use can give you mileage in your credit score. However, you need to be careful because closing those account could also mean that you have less credit available which directly impacts your credit utilisation ratio.
As a rule of thumb, keep those accounts with a long history of responsible and good repayments and close the rest. Normally, credit reference agencies maintain a record of closed accounts for up to 6 years before expunging them from your credit report.
5. Check for Any Financial Linkages
If you’ve ever taken a joint mortgage or operated a joint account with anyone, it is important to check for any financial linkages. The financial record of the other party could have implications on your score. Lenders often use this information to decide if they should approve that loan you’ve applied for or not.
Think of your ex-housemates or former partners and any financial commitments you may have entered together. One of the easiest ways to find this out is by looking at your credit report and asking that they be removed in case you are still connected.
When it comes to improving your credit score during lockdown there is no one size fits all approach. Your credit journey is as unique as the other person. Take time and look at your unique circumstances and the factors that impact your credit score and draw a roadmap tailored for you.