What is considered to be good or poor credit?

Generally speaking, a credit score of 670 to 739 is a good credit score. However, building credit is not just for those with poor credit scores. It is always beneficial to get into financially healthy habits and build your credit score up as high as possible. 

Having a good credit score boosts your chances of being approved for loans and lines of credit and maximises the likelihood of receiving the best rates available, all of which will save you money in the long run.

1. Join the electoral register

Joining the electoral register helps lenders to confirm your identity when reviewing your application for loans or a credit card. If you are on the electoral register, there is an official record of your name and address. This is a free and simple action that means that you are making life easier for lenders and ensuring that when they go to verify your information, they can do so quickly via the electoral register.

2. Pay off existing debt

If you already have a large amount of outstanding debt, you should work to pay this off as quickly as possible. Generally speaking, if you make regular repayments in a timely manner, this will help your credit score in the long term as it shows you to be a reliable borrower. Lenders and credit card providers want to know that you are able to pay the required amount at the required time.

Clearing out any debts is a good way to keep your credit score nice and clear, except for a mortgage that people would expect you to have for 10 or 20 years.

There are some products such as payday loans which are less desirable for your credit score and even though paying them on time is a good indication of creditworthiness, such high-cost products including rent to own and logbook loans are often associated with those living week to week and generally do not help your score.

3. Manage your credit utilisation rate

In order to build credit, you should manage your credit utilisation rate. This is the amount you are spending versus the amount of credit you have available. It is also known as a debt-to-loan ratio. Your credit utilisation rate lets lenders know how responsibly you are using your credit.

Financial experts recommend keeping credit utilisation at 30% or under meaning that you are never spending more than 30% of your available credit. For example, if your credit card has a limit of £1000 per month, you should try not to spend more than £300 in order to keep your credit utilisation ratio in check and positively impact your credit score.

4. Cancel unused cards

Unused lines of credit can cause unnecessary noise on your credit card. Not only that, but multiple lines of credit may indicate to lenders that you have a risky borrowing profile and that you need to seek out multiple forms of credit. Having multiple lines of credit open means that, in theory, you could be spending a large amount of money at any given time as you have a lot of credit available to you. If you have multiple cards that are unused, you should pay these off or close the accounts as soon as you can. This action can go a long way in improving your credit score.

5. Dispute any mistakes on your credit report

Errors on your credit report are easily made. Whether they have recorded payments that were on time as late, confused someone else’s credit activity with yours, listed closed accounts as open, or are showing information that is no longer valid, there are many mistakes that could negatively impact your credit report. 

Keep on top of your credit report and make sure that you identify any errors to credit reference agencies (and it is free to do so). Once identified, you can contact your credit bureau to contest these errors and remove them from your report. This will have a positive impact on your credit score.