A good credit score or rating is important if you are hoping to draw a bank loan or mortgage. Not only does having a good credit rating improve your chances of getting a loan, it also lowers the premium you have to pay on it. If you suffer from a bad credit score, however, fret not as it is possible to improve your credit scores by following a few simple steps as listed below:

1.       Review your credit history

In order to work towards improving your credit history, you should be aware of what has been working in your favour in the past and what has worked against you. You need to review your credit history by checking your credit reports by acquiring them from credit bureaus. Generally, factors that contribute to a good credit score include on-time payments, low credit card bills, and a mix of loan and credit accounts. Factors that contribute to a low credit history include missing out on payments and high credit card bills.

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2.       Make all your scheduled payments on time

Most lenders follow a similar pattern of determining credit scores which includes the following breakdown: Payment history is granted a 35% weightage; Credit usage is granted a 30% weightage; Age of account is granted a 15% weightage, and miscellaneous factors are granted 20%.

Since payment history is granted the highest weightage, you should make sure that you make all your scheduled payments on time. If you have previously received a country court judgement or a CCJ regarding a debt you failed to repay, you should be aware of how long does a CCJ stay on your credit file – it remains a dent in your credit history for six years.

3.       Only use 30% of credit utilization not more

The percentage of your credit limit that you are using at any time refers to credit utilization. In order to keep your credit utilization in check, make sure that you pay all your credit card balances completely each month.

However, if you aren’t able to pay your bill fully, make sure that the outstanding amount is either equal to or less than 30% of your credit limit. You may gradually work towards decreasing your utilization to 20% and then 10% over a period of time. Some credit cards also have a high alert feature that notifies you when your spending goes above the credit utilization rate you set.

4.       Don’t request for new credit

Your credit inquiries may be of two types and could be categorized as either hard inquiries or soft inquiries. A soft inquiry refers to you verifying your own credit history or report, and allowing other institutions to do the same. Whereas, a hard inquiry refers to you applying for a new credit card, a car loan, or a mortgage, etc.

While a soft inquiry does not harm your credit score, hard inquiry does. Hence, you should consider steering clear of anything that may be categorized as a hard inquiry.

If you are planning to purchase something significant like a home or a car, it is likely that you would require a loan. If your credit score is bad, the chances of you getting a loan or getting one on an affordable premium are very low. Hence, you should consider improving your credit score well in advance if you are planning such a purchase in the long run.

 

 

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