5 ways to build your credit score
A good credit score can be the key to accessing the loan you need - and an attractive interest rate. But a good credit score doesn't just happen overnight. It's the result of consistent, positive financial habits combined with the right kind of credit history.
If you are a beginner in the finance world, it can be tricky to know how to build a good credit score - and what kind of financial moves will trigger a decrease to your score.
So, here are five ways to build your credit score when you're just starting out (but they'll remain relevant even as you get more experienced!).
Start building some credit history
Just because you don't have any marks on your credit score, doesn't mean banks and lenders will consider you as creditworthy.
Having a credit card means you can provide evidence to your bank or lender that you can manage debt. However, if it's your first-time having access to credit, it can be tempting to let loose. So, you may want to consider applying for a card with a smaller limit. And ensure you only use it for purchases you know you can afford to repay.
If you're not too keen on having a credit card, another way to build a good credit history is to register your mobile phone plan or utilities (i.e., gas, electricity, internet) in your name and address. That way, you have a proven track record of managing multiple repayments.
Pay your bills and loans on time
When you start paying bills or making loan repayments, you'll want to ensure you're doing so on-time, every time. Lenders want to see a proven track record of responsible borrowing - which means steering clear of:
- Late payments - payments that are made more than 14 days after the due date, and
- Defaults - payments of $150 or more that are overdue for at least 60 days.
Missed payments and defaults can remain on your credit report for 2 years. So, just remember that keeping a good score is easier than repairing a bad one.
Don't make too many credit applications
A credit application may result in an immediate hit on your credit score. And while some can't be avoided (i.e. a mortgage), you may want to steer clear of making too many credit applications at once.
This is because it can indicate to lenders that you're desperate for credit and aren't managing your finances well. If you've been refused credit, you may want to wait a little while before trying again. Lenders may be more inclined to look past hits on your file if it was from a while ago.
Remember, an application for credit is different from making an enquiry about your credit score (the former will damage your score, while the latter doesn't affect your score).
Know your credit score
There's a common misconception that checking your credit score will negatively affect your score. This isn't true. Checking your credit report with credit reporting agencies or with some financial institutions - like Society One - won't affect your score.
However, if you apply for credit or a loan, the lender will normally perform a credit check on you to determine your creditworthiness. And this can affect your score.
Knowing our credit score is really important. It means you can identify any mistakes by the reporting agency, errors from your bank or lender or, in some cases, if identity theft has occurred.
If you don't know what your credit score is, you can check it for free here at SocietyOne! Our credit score report will provide you with powerful insights, to see how banks and lenders view your score.
Rectify any errors on your credit report
As soon as you see something that doesn't look right on your credit report (i.e. a default that's been recorded twice or an error in the amount of debt) report it to your lender or the credit reporting agency.
If you spot something that looks totally wrong (i.e. a loan that you never applied for) this may indicate something more serious, like identity theft. In this case, you'll want to contact your credit providers and let them know what happened. They may be able to shut down your accounts and help you retrieve any lost funds.
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