Never missing a repayment on your loan each month is one way to boost your credit score but here are a few other tricks you can try!
So far we have established what good debt is (something that appreciates in value and charges you low interest rates – e.g. house or student loan) and what bad debt is (something that loses value and charges you high interest rates – e.g. car or new TV).
I have also covered why a credit score exists and why it is important to have a good credit score – so you can prove to a lender (a commercial bank) that you are creditworthy enough to be granted a loan.
That now begs the question…
How can I improve my credit score?
I am now going to tell you a few ways to boost your credit score and explain why having a credit card, bizarrely, can actually be a good thing and how it can improve your credit score when used CORRECTLY and RESPONSIBLY.
One would think that by having no credit card or credit history would demonstrate to any lender that you have not got into financial trouble before, surely?
By having no credit file against your name shows that you have never needed to resort to credit cards to pay for stuff and that you have always lived within your means and paid for whatever you need with your own (unborrowed) money, right? Wrong.
…As soon as I found this out I then put in a credit card application.
If you apply for a credit card, use it sensibly and pay off the borrowed amount on time, this is tracked on your credit file and will show and prove to the bank that you can reliably pay back what you borrow. Regardless of whether it is a visa credit card or american express card card; the concept is the same.
Make sure you apply for a credit card that does not charge you any fees to own it (0% fees).
Set up a direct debit from your everyday/current account that pays off your credit card payments IN FULL at the end of each month: that is non-negotiable.
By automating this process it takes away that temptation for you to start spending your credit card irresponsibly, feeling guilty and then entering the phase of denial when you know you cannot afford to now pay it all back. Burying your head in the sand happens to the best of us!
My future blog topics will focus on budgeting in more detail, however, that is a vast subject that deserves it’s own series of posts (watch this space).
Your bank account will give you the option to pay back the full amount, minimum amount or amount of your choosing. To improve your credit score you need to be disciplined with yourself and choose the first option: the full amount.
Next thing, is to use your credit card regularly each month and never go over the 30% threshold of its maximum limit (unless it is an emergency).
Credit card agencies have highlighted that if you have, for example, a £1500 limit on your credit card, which costs you 0% fees to utilise, your credit score rating is reflected by how much of it you use:
- 0-30% (ie up to £450) of the £1500 = improves your credit score
- 30-50% (ie up to £750) of the £1500 = neutral
- >50% (ie between £751 – £1500) = decreases your credit score
Now, I only discovered this when speaking to a Registrar while on an A&E shift in Resus aged 27 so for all this time I had been using my credit card incorrectly – have you done the same? I would love to hear your comments as to whether you knew this or not. Perhaps I really am ignorant if it is common knowledge?
As a side note, this is a perfect example of the more I learn about something, the more I realise how little I know. I get very passionate about this and turn into more of a nerd by the day, as it motivates me to find other gaps in my knowledge. Lucky for you, however, I will keep you updated on my blog posts to what I discover.
Right, sorry. I have digressed. To summarise this credit card top tip then into a step-by-step guide, this is one of the things I implemented to boost my credit score:
- I applied for a credit card with 0% fees (unless I went over the £1500 limit).
- I use my credit card religiously, every month to pay for petrol (just an expense I chose to use it for, you could choose anything – weekly food shop, for instance).
- I keep my spending limit to 30% of its maximum amount.
- I set up a direct debit from my current account to my credit card account that pays off my payments in full at the end of each month.
- I only use my credit card above the 30% threshold if it is an emergency (e.g. I was abroad and stuck in India when my flight was cancelled due to bad weather in Leh. I used my credit card to pay for another flight home).
- When I used my card for an emergency, I manually paid off that amount in full as soon as I could (e.g. when I landed back into the UK and got home safe and sound).
- I applied for my credit card when it had been 3 months or more since my last hard search (I’m sorry, Amelia, what?)…
As always, I try to keep my blog posts concise and jam-packed with engaging content so what I will cover in my next blog post is:
- The definition of Hard and soft searches
- What is their significance
- More on the other credit card agencies, and how they can help to further improve your credit score.
I hope these topics are useful and you’re learning just as much as I am along the way. I would love you to hear your feedback so please leave a comment and subscribe to my mailing list so you are notified when I release my next post.
Time for my non-financial health fact:
**Caffeine has a 6 hour half life, which means that as soon as that espresso touches your lips the buzz effects of caffeine will finally leave your system 6 hours later; therefore, best to have your last caffeinated foodstuff (chocolate, coffee, soft drinks) before 4pm!**
This is just an educational platform and my opinion so please seek professional advice if you want information tailored to your personal circumstances.