Most people at some point will check their credit score at one of the 3 credit reference agency and see a figure that they don’t like. This often leads to searches on “how to improve your credit score”.
You will have probably seen advice that getting a credit card can help boost your credit score which is true but how?
Your credit rating is a report on your financial history from the last 6 years. It enabled lenders to see how likely you are to keep up with repayments when borrowing money. This report also shows more information such as links with other people, recent credit searches and if you are on the electoral register.
A credit card is another form of borrowing and when you make charges on your credit card and repay those in full and on time this will lead to your credit score improving.
Improve Your Credit Score
There are many ways to improve your credit score but the quickest and most basic way is to show you can make repayments on time. This is why credit cards are a brilliant way of boosting your score.
This could include things such as car insurance, mobile phone contracts, loans and utility bills. By making repayments on time for all of these things you are showing you can keep up with payments and to a certain extent manage your money.
People who use a credit card to improve their credit score are more likely to use it wisely, however there is still a high percentage of people who fall into the traps that credit cards offer, in the next section you will learn that those traps are and how to avoid them.
There are a number of issue if you want to use a credit card to improve your credit report. Firstly if you have a weak score it may be hard to get a credit card in the first place. Any credit card can get accepted for usually have high APR rates, typically 28.% or more. In this case its important you keep up to repayments on time so avoid any interest charges.
There are plenty of eligibility calculators online from credit card providers and comparison sites such as this one that allow you to see how likely you are to be accepted and for what cards without leaving search marker on your credit file.
If you do get approved you want to make sure you don’t overspend beyond your means to repay. If you miss a payment or you are late this will leave a negative mark on your report. You must always repay your credit card in full to avoid interest, at the very least make the minimum payment. Never miss a payment as this will leave a negative mark on your credit file and push your credit score even further down.
Getting a credit card will expose you to extra money you didn’t have. unfortunately for a lot of people this leads to the temptation of spending and more importantly withdrawing cash. Getting cash from an ATM using a credit card is a red flag for lots of lenders. This is due to the additional costs of cash withdrawals and people doing so could be seen as needing money fast, so lenders will be less likely to accept you in the future. Additional costs are also pretty high and interest on these charges are usually higher then spending on the card in the first place. Follow the simple rule of never withdraw cash using a credit card, its just not worth it.
Getting a shiny new credit card allows you to access money you wouldn’t normally have, some people feel they can buy things without the need for saving up which can lead them down the road of maxing out the card and high interest rates. To manage this form of credit card correctly you should use it to pay for things you normally would such as petrol or your food shopping. By doing this your not spending more than you can afford to as you would be spending it anyway, you are just spending your money in a way to improved your credit score.
There are other ways to improve your credit score.
- First request a credit report. This will cost £2 from for each report from the credit agencies.
- Make sure you are on the electoral register. This can take some time to update.
- Check your credit file for any mistake which could be a sign of identify fraud or any information which is incorrect about bankrupts or CCJ’s. You can challenge these if incorrect.
Hopefully this article explains the pros and cons of using a credit card as a way to improve your credit score and will put you in good stead for your financial future.