Your credit score can affect a huge amount of what goes on in your everyday financial life. From taking out loans to applying for mortgages and even renting a new flat, many lenders and financial companies will want to know what your credit score is before they grant you any kind of assistance. With that said, research suggests that many Brits have bad credit scores, and that an alarming amount of us don’t actually check our scores regularly. If you do find yourself saddled with bad credit, you’re not without options. Here are some of the things you should do if you have a low credit score.
Pay off existing debts
We know it sounds obvious, but paying off existing debts is one of the most effective ways to “wipe the slate clean” on your credit score. If you’ve got outstanding loans – no matter how small they may be – then try to pay them off as quickly as you can. Every loan that’s outstanding on your account is a black mark against your name as far as future lenders are concerned. Take a look through your bank account and ask yourself if there’s anything you could be making more regular repayments on, no matter how small or inconsequential it might seem.
Being easier to find is always a good thing if you’re thinking about your credit score. If you’re on the electoral register, it means lenders can easily locate information about you and cross-reference it with other data they can discover. Not being on the electoral roll means lenders will have a harder time confirming that you are who you say you are, which isn’t conducive to a good relationship with them. It doesn’t take long to register to vote; it’s just a few seconds on the official government website, but it could be an immeasurable help for your credit score.
For many people with a poor credit score, the blemishes on their rating reflect a time during which their finances were not as healthy as they should have been. If you’re back on track now and you want to restore your score, you could consider taking out a loan. Repaying loans promptly and regularly shows lenders that you’re trustworthy, so it can be a good way to build a good credit rating back up. It doesn’t matter how bad your rating is; you’ll almost certainly find a very bad credit loans direct lender out there to give you a second chance, even if your score is extremely poor.
Sometimes, using credit is unavoidable. Maybe it’s a few days until payday, but you’re in desperate need of something. Perhaps you need to pay for an urgent repair or health bill, but you don’t have the cash right now. That’s understandable, but in general, it’s a good idea to minimise your credit usage as much as you can. If lenders see that you don’t need to frequently utilise credit, they may be more amenable to lending money to you. It might sound like a catch-22 – prove you don’t need this loan so we can give it to you – but that’s how many lenders operate.
If you’re doing relatively well financially, it pays (no pun intended) to make much larger payments on your loans than you need to. This confidence reflects well on you; it shows lenders that not only are you able to make repayments, but you’re comfortable enough to accelerate the process. There are some situations in which overpaying may not be a good idea, particularly in reference to mortgage repayments, but for the most part, making larger repayments is good if you have the resources to do so. Try to move other aspects of your finances around if you need to.
There are specific types of loans out there that are designed to help people with poor credit scores. “Credit builders”, as they’re called, are loans or cards that don’t grant any funds at the outset, but still require you to make repayments on them. At the conclusion of the term, you’ll get the funds. These loans are rather unconventional in that their purpose is almost solely to build a good credit history for the borrower rather than to actually grant any kind of short-term financial benefit. This is a great option if you find yourself frequently rejected for loans and need to build up a good credit history.
Getting rejected for a loan or a credit card is fairly common, especially among people whose credit score is poor. If it happens, though, try not to immediately go and apply for another loan or card. Doing this will show lenders that you’re struggling financially, which will make them more recalcitrant to lend to you. Again, this is an unfortunate fact of the financial world; sometimes, desperately needing a loan is exactly what will ensure lenders won’t provide one to you. Try to leave some time before applications so that it doesn’t look like you’re desperate (even if you are).
Occasionally, a poor credit rating can be impacted (or even caused) by simple errors. For example, if you made a repayment on a loan or a credit card in an unusual way – or if the lender simply failed to log the payment – then this may reflect poorly on your credit score, even if you have settled the account. It’s worth going through your credit score on a regular basis to make sure the information is all correct. Doing so takes minutes at most, but it could save you endless headaches when it comes to making new loan or credit applications.