In October Independent credit broker TotallyMoneyFinancial has warned that victims of the health crisis could see their credit scores suffer for six years.
Late payments and defaults stay on credit records for six years, making it harder for people to get mortgages, credit cards, cell phone contracts, and pay utilities by direct debit. It could also increase the cost of auto insurance.
For this reason, many Britons might be looking to improve their credit score in the next year.
Loans, credit cards and mortgages business Ocean financing has created a guide that highlights the best ways to improve credit scores for good.
READ MORE: Four million Britons check their credit scores for the first time ever
Here are 15 ways to improve your credit score in 2021:
- Always stay below 25% of your credit limit so if you have £ 1,000 spend less than £ 250 per month.
- Do not open a new credit account for six months and you will increase your credit score by 50 points.
- Have a variety of different credit types to prove you’re a reliable borrower, for example, a credit card with a consistent balance and payment amount, a loan, mortgage, and bank card (if all of that is needed) .
- Use free eligibility checkers to see if you’ll be accepted for credit before you apply.
- If you are applying for credit, choose the timing carefully. If something is about to expire on your report, it might be worth the wait afterwards.
- Keep a fixed address – anything over three years looks better.
- Get a credit rebuilding card if you have bad credit or none. These come with a low, manageable limit and can help you build your credit score.
- If you have high interest debt that you are having trouble paying off, consider a debt consolidation loan.
- Avoid payday loans if you want a mortgage.
- Avoid using overdrafts – authorized or not – as they are classified as a form of borrowing.
- When paying off your credit card, pay more than the minimum if you can.
- Plus, two payments per month by credit card as it suggests you are paying above the minimum.
- If you’ve had financial problems in the past, consider a prepaid card where you load the card with cash and use it like a credit card.
- Pay off existing debt before applying for more credit if possible. Having a lot of unpaid debt is not favored by lenders when they apply for more credit – it is usually one of the most important factors affecting your credit score.
- Pay for your auto insurance monthly by direct debit instead of a single annual payment.
WATCH: Should I pay off my debts or save money during the coronavirus pandemic?
It comes like earlier this year it was revealed that millions of consumers could end up paying more to borrow due to the damage to credit scores during the COVID-19 pandemic.
Research by the money site Credit Karma UK found that a person going from a strong credit score (the equivalent of 610 or more) to a poor credit score (550 or less) might have to pay around $ 2 An additional £ 690 ($ 3,485) per year in interest on any new loans, until they partially or fully recover their creditworthiness.
Even restoring to an average score (of around 580) could still mean paying an additional interest charge of £ 740 per year until top status is regained – meaning consumers who see their Scores damaged during the economic fallout from COVID-19 could still find the loan more expensive years after the crisis has passed.
At the other end of the scale, “thin” consumers who score poorly due to a lack of a proven track record can also often have difficulty obtaining credit or paying higher rates as a result.
This is especially prevalent among young people who have an aversion to borrowing.
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