Improving Your Credit Rating Is Easy With These 6 Methods

There are plenty of benefits to having a good credit score. If you have a good credit score, you’ll find it easier to get loans, enter into mortgage agreements, and sign up for phone contracts, among other things. With a poor credit score, a lot of these things may be difficult, which makes everyday life much trickier. Platforms like Experian, Credit Karma, and ClearScore allow you to check this score, so there’s really no excuse for not knowing it; being armed with this knowledge is vital for your financial future.

There’s a chance you might have a poor credit score and not even know it. Whether you’re aware of it or not, there are lots of ways to improve your credit rating. It’s important to go into any financial endeavour armed with a good credit score, so if you’re looking for ways to boost this critical statistic, look no further. Here are our 6 favourite methods for improving your credit score.

1. Take out a loan

While this may initially seem like crazy advice, taking out a loan can actually be a strong way to improve your credit score. If you use a single unsecured personal loan to pay off a string of loans from different providers, this will look good on your credit score; you’re consolidating debt and paying off loans from various sources, which means you now only have a single loan to your name. What’s more, if you can make prompt repayments on that loan, your credit score will increase even further because you will look to lenders like a borrower that can responsibly and quickly pay back loans. Taking out a loan – if you can afford it financially – can be an excellent way to bolster your credit score.

2. Keep overall debt level low

It sounds like an obvious thing to say, but if you want a favourable credit score, one of the best things you can do is to keep your overall debt level low. Try to pay off loans as soon as you get them, make prompt repayments on any debts you do have, and do your very best – outside the occasional loan, of course – not to take on more debt than you actually need. In order to do this, you should try to make as many payments as possible using savings or liquid salary. Don’t borrow when it’s time to remodel the house, for example, or pay for a child’s education, if you can make that payment outright. It’ll look better for your credit score that way.

3. Challenge fraudulent activity

Credit card fraud and bank account fraud can adversely and massively affect your credit score. Unfortunately, no matter how quickly you identify fraud and alert the relevant bodies, it can still make a negative dent in your credit score, so it’s important that you are as thorough and rapid as possible in challenging potentially fraudulent activity. As soon as you see something that doesn’t look right – new direct debit payments you don’t remember setting up, or money leaving your account that you didn’t authorise – immediately contact your bank or relevant credit card provider and inform them. The quicker you do this, the less of a negative impact it will have on your credit score.

4. Use less credit

Have you got a credit card? If you have, try not to spend too much on it, because keeping your “credit utilisation” score – the amount of spending proportionate to your maximum limit on a credit card – low is seen as a good thing by most lenders. Try not to exceed around 25-30% of your credit card limit, because the less reliance you have on credit, the more financially solvent most lenders and other organisations will think you are. If you have multiple credit cards, it stands to reason you should stay below this percentage on each one, but don’t worry – it’s not cumulative, so you can spend up to 25% on each card without negatively impacting your credit score too much.

5. Pay bills promptly

One of the most effective ways to raise your credit score – and probably something you’re already doing regularly – is to pay things like utility bills and phone contract bills on time. By doing so, you’re showing potential lenders that you don’t have an issue making repayments on things when they’re required. You’re also making those companies happier with you, which is better for everyone in the long run; being chased for outstanding debts by companies eager to get paid is never fun. Remember to keep track of all your bills in a planner or diary; that way, you’ll know when payments are coming up and will be able to quickly and easily make those repayments.   

6. Talk to your spouse or family members

Sometimes, having a joint account with a friend, family member, or spouse could negatively impact your credit rating. The logic is thus: if that person isn’t financially solvent, then it may reflect poorly on you as well. If you’re in a position to help the co-owner of your joint account to make more regular repayments, then you should do so at your earliest convenience, because their credit rating will bleed over into yours. If you’re concerned about this happening, it may be a good idea to discuss whether or not having a joint account is a good idea with your spouse or family member. Splitting the account may be for the best in the long run.   

Annika Bansal

Annika "The Chick Geek" is the founder of Small Business Sense shares small business ideas, tips and resources for independent Entrepreneurs and Small Business owners.