Establishing a great credit score is one of the best ways to build your financial credibility as you move through everyday life. A good score will enable you to get approved for financial products at competitive rates.
While the main credit reporting agencies in the UK- Experian, Equifax and TransUnion use different credit scoring classification, having a score of 670 and above is generally considered good. Moreover, the data these agencies use to calculate your score is similar and includes such factors as your payment history, the length of your credit history and the size of debt you currently have.
How To Build Your Credit Score
There are different ways you can build your credit score and one of the most commonly used is credit cards. Both secured and retail credit cards can help you build your credit score even if you are a credit newbie with no credit history.
Having said that, you could be one of the people who either doesn’t want to use a credit card or you are having trouble getting approved for one. This shouldn’t be a problem because you can still build your credit score without using a credit card. Read on to find out the various other options to help you build a strong credit history.
Get Credit for Your Rent
If you are a renter, your rent payments can help you boost your credit score. This is not a common practice because most property managers and landlords may not be aware of programs such as Rental Exchange by Experian or the collaboration between CreditLadder and Equifax to help report rent payments to credit reference agencies.
The advantage of such rent reporting programs is that they give you the tenant an online proof of identity which goes a long way in building a solid credit history. As you pay your rent on time, you’ll get credit for that whether you are a private tenant or a social housing tenant. You can either self-report your tenant data or ask your landlord to report your rental payment.
A credit builder loan
A credit builder loan is a credit facility offered by institutions such as credit unions to help loanees improve their credit score. The amount you borrow is deposited in a savings account and you can’t access the funds until the loan is fully repaid.
While the funds are in the savings account, you start making repayments for the loan until it is fully cleared at which time the funds are now released to you including the interest earned. If you make the repayments on time in the duration of the loan, you’ll have successfully improved your credit score. Even if you have bad credit, you can still get approved for these low-interest rate loans.
Authorised User Status
If you have a short credit history, you can request another person to add you to their credit card account as a strategy to improve your credit quickly. This arrangement works best if the other person also known as a primary user has a long history of timely card payments.
As an authorised user, you’ll receive a card from the issuer with your name on it. However, the card-issuing company will still hold the primary user responsible for all card payments and charges.
You need to agree with the primary user on whether you’ll use the card for purchases or you’ll simply have your name listed with no transactions coming from your end. Being an authorised user helps where you cannot qualify for a card of your own as it boosts your credit age- an important credit scoring factor.
Sign up for Alternative Credit-Scoring Methods
Credit scoring models have traditionally used inputs such as borrowing histories, loans, and credit cards to computing scores. Other non-credit based payments like utilities, phone bills and digital entertainment payments have often been left out.
However, that is now a thing of the past with innovative credit scoring methods coming up. For instance, Experian now has a novel product- Experian Boost, which can help you increase your credit score. How it works is simple, share as much information as you can with the credit reference agency about how you manage your finances.
For example, if you pay Spotify, Netflix, Council Tax, water bills, or gas bills, you can share this information and get an instant boost on your credit score. Apart from getting credit for day-to-day payments, the discipline also makes the effort you put into budgeting and cash management count. Most of these services are free and all you need is just to sign up and get going.
Get on the Electoral Roll
The law requires that you register to vote even if you are not planning to vote. Apart from being a good law-abiding citizen, getting on the electoral roll helps to enhance your chances of getting credit.
When you register to vote, your details including your name and address are captured on your credit report. This helps lenders to confirm your identity easily and reliably, a key factor in credit scoring models.
There are a couple of ways you can register. If you are in England, Wales, or Scotland, you can register to vote via post or online. You’ll also be sent a Household Enquiry Form every year around July to November to help you update your voter registration records. Within 30 days of your voter registration, your details will appear on your credit report.
Check Your Credit Report for Incorrect Information
It is important to check your credit report and ensure that the information the credit reference agencies have about you is correct. This means getting regular credit reports and scanning through to ensure everything on it represents who you are in the financial sense.
In case you see any misinformation, you can apply to have the errors removed through a Notice of Correction. This is a short statement, 200 words maximum, explaining why the information shown on your report is not reflective of your overall financial picture. Such corrections can boost your score effortlessly.
While a credit card is an important tool to help you improve your credit score, it is not the only option available. There are other ways such as getting credit for your rent, applying for a credit builder loan, signing up for alternative credit scoring methods, registering on the electoral roll, and getting listed as an authorised user on credit cards that can help you. There are other ways out there, but these options can give you a great start.