How To Improve A Poor Credit Score To 800+ For Good
When I went to biz school, I recall one of my professors always said:
“Money flows from one place to another looking for where it will get looked after”.
What he meant was that money moves around and tends to stay where it is receiving a return on investment.
If you think about this from the other side, you’ll also realise that money discriminates.
To be more specific, debt discriminates.
If you have good credit, you’re courted with the best offers (better mortgage rates etc) and the price of money is cheap.
If you have bad credit, on the other hand, you’re left with the scraps and essentially punished by lenders for irresponsibility with money.
A credit report and the related credit score is then essentially an x-ray of your financial life. Another way of thinking about it is as a financial selfie.
There is no hiding away from it, and there is no escaping the need for a good credit score especially if you live in the West.
It should be noted that in many parts of the world, life goes on pretty well without the need for a credit score.
That’s because, in such parts of the world, people aren’t relying on lifestyles funded by debt.
Another way to replicate that life possibility in the West is to aim for “FU Money” or achieve Financial Independence.
This way you’ll have both a history of good money management and independence from debt.
If however, you’re still at the stage of life where you’re still to get a mortgage or trying to pay off debt, then this subject is important.
In such scenarios, your credit file exists whether you like it or not, and can be accessed by those with the powers that be.
What’s interesting though is that you have the opportunity to influence what gets documented about you.
It has been a very long time since I ever had to think about my credit report.
This is because I’ve got to a stage in my financial life where I can pretty much predict what my likely score would be.
To test this, I downloaded my credit score:
I wasn’t too far off the 999 score I expected.
Just sharing this to make the point. As usual, no interest in showing off.
It is my belief that everyone should be confident enough to expect an 800+ score if they took this stuff more seriously.
And there will come a point when none of this will matter when you’ve truly become a master of your money.
As a friend recently said to me:
“This stuff is common sense, but it is not common practice or common knowledge”.
In the same week he said it, someone else told me during a coaching session that their credit score was in the low two hundred.
All roads point to credit scores remaining an issue for quite some time.
Especially with a culture geared towards consumerism and easy access to expensive debt.
I’m aware of how demoralising it can be to have a poor credit score and get rejected for even the most basic things.
I know this well because, in times past, I’ve had to help family members climb out of this hole.
There is a way of running your financial life that pretty much guarantees that your credit score will be in the 800+ zone for good.
Before we dive into that, let’s cover ground on some basics.
What is a Credit Score?
It’s a tool used by lenders to work out to what extent you qualify for loans, credit cards, mortgages etc.
It is calculated by a mathematical model and uses your historical payment history to work out a score.
Lenders use it to gauge how naughty you might have been in the past, and how likely you’re to repay your debts.
Put simply, if you’re a good steward of money, you’re very likely to have a high credit score. And a high credit score implies you’re a low risk!
Factors that make your credit score go up or down include:
- Credit searches (if and when you make one)
- Your payment history
- Public records (e.g. Electoral register or County Court Judgements
- The proportion of available credit used vs total debts
- Length of credit history
How to check your credit score for Free
You have a legal right to check your credit file to see what financial records are held on you.
This used to cost £2 each time you did it, but GDPR now means you can get a statutory report for Free!
They are also much quicker to apply for and can be done online.
It’s important to check your credit score on an ongoing basis and check it across the various agencies.
This is because the credit report that each agency holds on you can be different from time to time.
There are 3 agencies that lenders go to regarding your credit report. These are Experian, Equifax and Call Credit.
I highly recommend checking all three once a year ideally. If however, you haven’t got the time to, then Experian is one to check out.
It is the largest of all of them, and one that we use personally to check our credit scores or reports if need be.
To see what your credit profile says about you, get your free Experian Credit Score.
You can also get them through Equifax and Call credit (Noddle).
Note that checking your credit score many times does not work against you negatively.
How To Improve A Poor Credit Score
Improving your credit score and keeping it high takes doing certain things well consistently.
Below are actionable steps you can take today to improve a poor credit score for good:
1. Check for errors on your report
Credit reference agencies can get things wrong and partly not their fault.
It is very common for credit reports to carry errors on them. I recall once checking my credit report years ago and seeing a CCJ (County Court Judgement).
This is possibly the worst thing you can expect to have on a report.
It ofcourse had an adverse effect and upon investigation, the error was spotted and my report updated.
Had I not checked it and applied for a mortgage, I would have been refused and this could have compounded my problems.
2. Pay bills on time without fail
To pay bills, you must ofcourse have bills in your name.
A big mistake that many people (especially the young) make is that they take out phone contracts and start missing bills.
Some people even go as far as avoiding their utility companies and assume that small amounts won’t be chased.
Utilities are by far the worst kind of bills to ever ignore. The consequences will persist for a long time.
If you took out a phone contract many years ago and conveniently moved to another provider and forgot to pay off all your debts, now is a good time to sort it.
A simple review of your free credit score and the related report will immediately show you where you’re going wrong.
It goes without saying that in order to pay bills on time, you have to automate payments and budget appropriately.
3. Ensure your credit balances are low
In order to be approved for debt, you usually have to show that you’re able to manage debt.
So it’s no surprise that one way to improve your credit score is to manage your existing debt well.
Credit cards are a good way of doing this. If you already have credit card debts, then ensuring your balances are low improves your score.
If you’ve got no debt and considering taking out a credit card, I’d say you should only do this if you can manage cash flow.
The inability to manage cash flow is the number 1 reason many are broke!
Practically speaking, if you have a credit card with a £3,000 balance, you should aim to have a balance of £300 or less.
Note that there is an irony with credit cards to improve your credit score..
You’re in effect taking on a credit card (debt) to prove that you’ll be good at managing more debt (e.g. mortgage).
Can you see where this could end up? Debt on top of more debt.
I’m telling you this so that you understand that this a game designed for the other side to win if you’re not careful.
4. Consider your length of credit history
The length of time you’ve had a bank account for matters.
If you’re like me, you’ve probably got accounts with at least 3 to 5 banks.
What’s interesting about this is that from time to time, we might want to close accounts and move on.
The way you should choose which account to close should be based on how long you’ve had it for.
Aim to keep accounts you’ve had for the longest as they demonstrate trust and your ability to maintain an account for a long time.
It’s also worth pointing out that if you have 2 or more credit cards and want to close them all, I’d recommend keeping the one you’ve had for the longest.
Obviously, put in place the necessary controls to ensure that you aren’t spending unnecessarily.
5. Keep things diverse naturally
Lenders like to see that you’re able to manage a variety of credit types.
This is because in life you’re expected to demonstrate balance.
So rather than have 5 store cards, it’s better to have a credit card, car loan etc.
Remember though that however you cut it, it’s still debt! The best outcome is to demonstrate your responsibility for them.
6. Register on the electoral register
Having your name registered at the electoral register for voting purposes is one important way of demonstrating some stability
This is partly because you have to go through some checks in order to add your name to the register, and the penalty for incorrect information is very high.
As such, the electoral register, which is used for votes is highly trusted and is another way of validating who you are.
Turning a poor credit score to a high credit score demonstrates growth and responsibility with money.
Don’t take on debt unless you must, and even then, ensure you have the discipline to pay it back.
Money borrowed isn’t free, and if you go into it with that mindset, you’ll remain a good steward of money and get rewarded by a high credit score.
Finally, be patient and don’t get frustrated. Improving your credit score will take some. The important thing to remember is that a poor credit score will not stay poor forever.
- How To Motivate Yourself To Budget Consistently
- 10 Reasons Why People Spend More Money Than They Earn
- Stop Hating Your Wealth And Start Building Wealth
- How To Pay Off Your Mortgage Early & Why You Should
- Plot Your Escape, Choose Financial Independence
Have you had issues with your credit score? What was the cause? If sorted, what did you do to increase your score?
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.