Keeping a solid credit score can give you the power to purchase a new car or finance your first home. Credit reports can seem daunting, but they are an essential part in evaluating your financial situation from the outside. But, how do you get started?
Firstly, you need to gain access to your credit score and report. There are three main credit bureaus in the UK, including an Experian credit check you can perform online. Once you have your credit check, you’ll notice there are a number of factors that influence your overall credit score. It is very important to go through the report step by step; when you know the problems that are making your credit score low, you can work to alleviate the specific problems.
How can you read – and understand – your credit report?
Here’s a summary of what you need to pay attention to:
Your credit score is an evaluation number assigned to you based on your record of financial behaviour. Your credit report includes your full legal name, your current address, previous addresses, and a full account of any credit cards you hold, loans you have been approved for, collection records, and any negative bankruptcies or tax liens.
Other information on your credit report includes your place of employment, previous jobs you have had, and any inquiries that have been made by financial institutions to see what your credit score is. It is important to remember that the payment history of your loans and credit cards goes back for a period of seven years.
If you are declared bankrupt by applying to the court, or because creditors have filed against you in court, your assets might be used to pay back the debt you owe. The details of your bankruptcy will be published, and after about a year the bankruptcy is generally discharged. The bankruptcy remains on your credit report for a period of six years after the discharge.
So how do you improve your credit score?
There are actually a number of simple steps you can take immediately. If you have any credit cards with balances close to the lending limit, start paying down the balance if possible. The bigger the spread between what you owe and what you are able to borrow, the higher your credit score will be.
If you know your credit score isn’t great, do not apply for any more credit. Continued inquiries into your credit score have a negative effect on your credit rating. You should check your credit score once a year and only apply for credit if you absolutely need it. Applying for credit too often just to see if you get approved will eventually reduce your credit score according to MSN Money,
Other ways to increase your credit score include closing any accounts that you no longer need or use. Although an open credit card with a high available credit limit and a zero balance may improve your credit score in the short term, there is a limit to the amount of credit you can have open based on your income and current credit score.
For example, if you want to buy a car, you should not have a large open credit card for a business that you aren’t going to use. Open accounts are all considered when you go to apply for a car loan, and if you have a big credit line somewhere else, this may stop you from being able to buy a car.
Check your credit score yearly, and reduce balances that you owe as quickly as possible.
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