2D graphic of man next to a giant credit score graph.

How to improve your credit score and how do they work?

Understanding this will be key in making sure that your mortgage application process goes as smoothly as possible.

6 min read

What exactly is a credit report

From a young age, you have been conditioned to prioritise your credit score. But what's rarely discussed is the undeniable power it holds over your financial life and how you can use this information to foster success rather than failure.

Now, shall we jump right in?

Your credit report is a comprehensive account of your financial habits, showcasing how you have managed debt and repaid it over time.

Credit bureaus or credit reporting agencies compile your financial information from lenders, credit card companies, and other fiscal organisations with whom you have a relationship.

Get all the specifics regarding your credit accounts - not only covering credit cards, loans, and mortgages but also payment histories, credit limits or unpaid balances. With this information at hand you'll be able to make informed decisions about your financial future.

With such a comprehensive overview of one's financial history, credit reports are incredibly important. Consequently, they're relied upon frequently by many individuals and organisations.

Essentially, your credit report is an essential financial background check that provides a wealth of information to landlords, lenders, and anybody else looking to give you access to a line of credit - whether it's for utility accounts or car leases.

Your credit report reveals your financial management skills and will be a deciding factor in whether you are approved or declined for any type of loan, including mortgages. Additionally, this information can also dictate the interest rate that you must pay back on these loans.

Credit reports are not only necessary for taking out loans, they also act as a guard against identity theft and reveal any searches conducted by lenders.

Whether it’s a difficult search (like when someone applies for credit) or a soft inquiry (for pre-approval), such searches can help you identify any unauthorised accounts and inquiries, allowing you to address them promptly.

Unlocking the Mysteries of Your Credit Report: How to Take Control and Improve Your Financial Standing.

If you want to be your own financial master, here are the must-know facts.

Your credit score is a powerful reflection of your financial health, but it simply doesn't tell the complete story. Credit Reports are essential to gain further insight into why that number was generated in the first place.

Your credit report reveals your entire financial history, and although your credit score matters, it's not the only factor that counts. Don't despair if yours is still small; there are many opportunities to slowly build up a healthy score!

Checking your credit report on a regular basis is indispensable, as it validates the accuracy and currency of your personal information.

Ensure you are registered to vote at your current address.

Although this might appear to be a minor detail, if you don't show up on the electoral roll when lenders conduct their credit searches it can create an obstacle for obtaining a mortgage. While it's not unattainable to get your home loan without being part of the electoral roll, doing so may reduce which lender options are available or require submitting additional documents prior to receiving an offer.

Too little credit? Too much credit? Which is best?

It is beneficial to have a credit history in order for lenders and creditors to understand your financial behaviour. A great way of establishing one's credit record is by getting a credit card - a convenient tool that almost anyone can access.

If you are looking to demonstrate a responsible attitude towards borrowing, one of the most effective methods is to utilise your credit card each month, such as for fuel payments. Subsequently paying off this debt in full at the end of every month will not only build your credit history but also ensure that you do not compile an excessive amount of debt.

Demonstrating to creditors that you can manage your accounts responsibly and on-time is a great way of proving your reliability as a borrower. Old, well-maintained accounts will typically result in higher credit scores.

Close unused credit card accounts

If you have credit cards that are not in use, make sure to cancel them and close the accounts. This is because they still appear as potential sources of borrowing even if there is no balance due on these cards. Doing this will help improve your overall credit score and keep it in good standing.

A creditor may become anxious about the potential debt when evaluating your financial standing. Furthermore, keeping these accounts open but inactive poses a risk of fraudulent activity.

To maintain your credit score, keep your credit use low.

To build your credit score, aim to keep your overall credit utilisation under 30%. Lenders view lower percentages positively and this will help you boost your credit score. Even if you have a good payment history, lenders may be less likely to approve applications where most of the lines of credit are used up close to their maximum limit.

Inspect your report and identify any discrepancies or errors.

Even the most minute mistake, like a wrong address, can have an effect on your credit score that could affect you when applying for a mortgage.

To ensure that the information on your provider’s site is accurate and updated, routinely check it. If a mistake is spotted, contact them right away to request an amendment.

Staying vigilant with your credit file can help you to identify any fraudulent activity early on.

Beware of cyber criminals who could stealthily acquire your personal information and misuse it for illicit purposes, such as taking out credit in your name without any knowledge on your part.

If something appears on your credit report that you don't recognise, it's critical to take action and file a report. This not only gives you peace of mind but also helps protect against future suspicious activity.

Paying attention to utility bills is essential for maintaining a good credit score.

Credit cards and loans get all the attention when it comes to credit reporting, but occasionally a missed payment on a utility bill can be enough for mortgage lenders to reject your application. In some cases, one late fee or mistake could cost you thousands in lost equity!

Avoiding an unexpected bill from a utility provider just because you've moved address is not the solution. It could result in it being noted as a default on your report and subsequently reflect poorly when seeking credit or services elsewhere. Calling the company to explain and resolve the situation will make all of the difference, so ensure that's your first step towards rectifying any discrepancies!

From mobile phone contracts that appear as loans to other actions, they all factor into your creditworthiness.

Let's be honest, mistakes happen and late payments are a part of life. To ensure you maintain an excellent credit score, it is critical that you pay off any missed or overdue payments as quickly as possible by communicating with the company in question. Doing this will go a long way to help your future loan prospects!

In the event of any issues with your credit report, be sure to contact a broker. Lenders indeed have various criteria and their consideration for particulars about credit history is highly individualised. This factor can never be understated when it comes to financial decisions!

When it comes to lenders, some have a strict zero tolerance policy, while others may be more flexible. A broker is the best person to understand and navigate through these policies in order to help you make an informed decision that will likely result in a favourable outcome for you. They can also provide explanations or additional information as needed.

For those with an adverse credit history, there are specialised lenders that offer policies tailored to their needs.

Negative credit scores can transpire for an array of reasons, but there is always a new opportunity to address them and shift the narrative.

Click here to Check your credit score with all 3 credit reference agents in one go! Experian, Equifax and TransUnion.

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