How to build your credit score

Your credit score is an important part of your loan applications whether you’re applying for a car loan or a mortgage. Lenders use your credit rating to assess your creditworthiness. If you have a high credit score, you have a better chance of getting a good deal on your loan. But what happens if you have a low credit rating? 

Unfortunately, those with poor credit scores often have difficulty getting loan approval or financing with competitive rates. If you find yourself in that situation, worry not! There are a few ways you can improve your credit score, such as: 

Correct errors in your credit report 

A good first step to a better and more accurate credit score is to review your credit report and make sure everything is accurate. You can request a free copy of your credit report from agencies such as Equifax, Experian and illion. If you spot any mistakes, let the credit reporting bureau know and they’ll correct them. 

Some common mistakes you should look out for include having the wrong name and/or address, incorrect debt amount, and inaccurately listed debts or repayments. These errors may sound simple, but they could knock your credit score down a few points. Having them fixed is a relatively easy and quick way to improve your credit rating. 

Pay your bills and repayments on time 

You can’t change your previous late payments, but you can improve your financial habits moving forward. Making timely payments on your utilities, debt, and credit cards not only improves your credit score but also shows prospective lenders that you are responsible with your finances and a reliable borrower. 

Since your credit history contains seven years’ worth of information, maintaining good habits like paying bills and debt on time is key. 

Limit your credit and loan applications 

If you want to improve your credit score, it’s best to avoid applying for new loans. When you apply for a loan or credit card, lenders will send a hard inquiry into your credit. These inquiries lower your credit score by a few points so when you apply for multiple lines of credit in a short span of time, your credit rating will take a hit and make lenders wary.

Use this time to get your finances under control. It’s always a good idea to pay off any existing debt (or at least some of it) before adding more debt to the mix. Increasing your credit score takes time and applying for more lines of credit could hinder any improvements. 

Avoid closing old credit accounts 

Having a long, established credit history can be good for your credit rating. This is especially true if you’ve been making consistent and timely payments. In addition to your credit score, lenders look at your credit history to review your spending habits. Having a longer credit history can be more beneficial to your loan application. 

Lower your credit limit 

Instead of closing old credit card accounts, try limiting your credit limit to reduce how much debt you can accumulate. Having lower credit limits could help you better manage your spending habits which will make it easier to improve your credit score. This could also make it easier to build a healthy credit history with timely payments and lower debt accrual. 

Build your savings 

Building and maintaining savings is important not just for your credit score but your overall financial health. If you have enough savings, you can rest easy knowing you have enough funds to pay your debts and bills on time even if there’s an emergency or you need to spend on something that’s outside your usual budget. 

Aside from helping you pay your bills on time, there are plenty of other positives to building up savings. When you’re applying for a loan, having sizable savings shows that you have enough to make your repayments but also improves your creditworthiness in the eyes of the lenders. 

Be patient 

Improving your credit score doesn’t happen overnight. It could take months to years for your credit rating to be at a level you’re satisfied with. Ultimately, the best way to increase your credit score is to build better spending habits and stay on top of your finances. 

If you want to know how much you can borrow with your current credit score, talk to our friendly lending specialists today! You can also pre-apply for a loan to see how much you can borrow for a car loan or home loan.  

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