Your credit rating is pretty important in life. It determines whether you get approved for mortgages, credit cards or loans, and is a factor for impacting the interest rates you’ll pay on each of these as well. An improved credit rating means lower interest and insurance rates. Many people are unhappy with their credit score, but there are some quick and simple ways to improve it.
Credit Utilisation Ratio
Your credit rating takes into account multiple components, and your credit utilisation ratio makes up 30% of this. This works out how much debt you have compared to your total available credit – so the ratio will be lower if you have more unused credit available. Eg.) The credit limit on your card is £5,000 but you owe £4,000, so your credit utilisation ratio is 80%. For the average borrower, that is quite high, and the ideal percentage would be around 30%.
You can lower your credit utilisation ratio by:
Paying off your debt – following on from the above example, if you were to pay off £1,500 of that debt, your new ratio would be 50%. Lowering your debt will quickly boost your credit rating.
Increasing your credit limit – this will only work if you have a good track record with the provider in question. However, if you are able to raise your limit, this can also lower your ratio. Just make sure that you don’t get carried away with your extended borrowing limit.
Signing up for a new credit card – perhaps not the smartest thing to do if you are already in debt. But if you are desperate to improve your credit rating, this may be your only option. If you are unable to obtain a new credit card because of your low score, look at a secured credit card.
On average, 15% of your credit rating will be made up by the length of your credit history. If you are new to credit and your score is low because of this, then unfortunately you just need to be patient and build it up slowly. But there are still ways to set you up for an improved rating in the future:
Keep your cards open – don’t close any existing accounts you have. Each one still contributes to your credit history. Your credit rating will be higher if you’ve had your accounts longer – contrary to popular belief!
Become an authorised user – see if you can become an authorised user on someone else’s card if you are having trouble getting approved for new accounts. Make sure it is with a responsible user that you can trust.
Types of Credit
Another factor of your credit rating is the types of credit in use. This makes up 10% of your credit score. This component favours individuals who have several types of loans – such as home loans, credit cards, auto loans, student loans etc. To improve on this part of your credit rating, you can:
Mix up your forms of credit – you should not borrow money just to improve your score, but it is worth considering that using a store card a couple of times and paying it off quickly may help to improve your credit rating.
If you are struggling with your credit rating or need help managing your debts, we can help. All our services are confidential and we work closely with you. Give our friendly team of experts a call on 01708 854200 or email us at email@example.com.