Missed repayments, loan defaults and irresponsible spending can all lead to a bad credit score.
But you may be left wondering what it means to have a bad credit score, and how you can improve it. If so, you’re not alone!
According to results from the UK’s Financial Capability Survey, 39% of adults are not confident when it comes to managing their money. However, it’s easier than you’d think to improve your credit score.
If you are in the process of assessing your finances and want to know more about your credit score and how to lift it, we’ve pulled together some tips to help.
What is a credit rating?
A credit rating is a score used by lenders to assess how likely or unlikely you are to be accepted for credit. They’re made up of your past and current financial habits for lenders to decide how risky you are to lend to, and the likeliness of you being able to pay back anything you loan.
However, how it’s calculated is largely secretive, and many companies use their own rating system, meaning it can be hard to get an exact picture of yours.
How to improve your credit rating
The good news is that although credit ratings can be somewhat elusive, they aren’t fixed for life. To improve yours, follow our easy two-step process.
1. Step one: keep an eye on your credit score
Knowing your credit score is integral to being able to build upon it. If you’re looking to improve your rating, look online to see what you’re doing well and what can be improved. Many websites will even give you a list outlining these elements.
Knowing your credit score also helps get an idea of whether you’ll be accepted or not before applying for credit, as a rejection can push your score down even further. If you’re not sure whether you’ll be accepted, it’s usually best to err on the side of caution and refrain from applying.
2. Step two: build your credit
Bad credit doesn’t always mean you’ve been irresponsible, you may just have no credit history, especially if you’re just starting out as financially independent. Options like credit building credit cards can help you prove to lenders that you can be responsible and start building a record.
In conclusion
Although one in four of us are in financial difficulties, knowing and improving your credit score can be a good way to get back on track. By knowing your credit score and taking small steps to improve it, you too can move towards financial stability.
If you follow the above two steps – it’s probably easier than you’d think!