There are times when you find yourself in a pinch and in need of a loan. Other times, an opportunity presents itself that requires money you don’t have lying around. Then, you may want to take a mortgage.
I moved to the UK in 2013. This was the first time I realised some countries had rating systems for their residents. The US does it, and so does the UK.
The rating, also known as a Credit Score, measures how credit worthy you are. The higher your score, the more likely you are to get a loan. You are also more likely to be approved when renting a new flat, for example.
Intuitively, I thought the more money I had, the higher my score would be. I was wrong. In fact, there is no mention of your balance at all in your credit score.
So what DOES affect your credit score? It turns out there are quite a few easy ways to improve your score.
- Register to vote. This is the easiest one. Make sure you register to vote. Yes, that affects your score. The longer you are registered in one address, the better.
- Hold credit cards. This one is straightforward but not always as easy. The details are a bit obscure, but I believe any credit cards will do, so long as you use them and pay the full amount on time consistently. The more you have – the better. Aim for credit of at least £15,000.
- Always pay your bills on time. Never, and I mean never, miss a payment. Always pay your credit cards in full on time. It’s easier to do if you set up a direct debit.
- Stick to one provider. This one takes some time. You only have to choose one provider. I found it easier to stick to my mobile provider. Do that for 6 years for the optimal score. You can continue switching your other service providers.
- Keep your spend low. How low? 1% to 25% of your credit limit is ideal. You can do this by either spending less or having more credit. This is measured per card.
- Consolidate your credit checks. This has a short term impact on your score, so you don’t want it spread over a long period of time. This includes opening bank accounts, applying for loans and applying for credit cards.
A few words about credit cards. I keep my credit cards active by spreading my subscriptions between them. This way I don’t have to worry about them not being utilised. Every once in a while, I see if I can raise my credit limit on my cards. This is easier than applying for a new card.
There are a few other things to keep in mind: your spouse’s rating also affects your score. Having a mortgage is also constructive for your score.
I try to always keep my score as high as I can. I never know when I’ll need a loan or to pass a credit check. Banks are happier to give you better loan terms if your score is high, too.
I hope this helps you keep your score high, too.