Practical Tips to Help Build Your Credit Score
The UK Consumer Market and the Cost-of-Living.
Currently in the UK, inflation has hit a 40-year record high due to a conglomerate of financial pressures which is making it hard for both consumers and UK businesses. Retail businesses are already starting to see decreases in consumer spending after a few consecutive months of decreased sale volumes since February 2022. According to Credit Connect, 1 in 6 households in the UK are facing “serious financial difficulty”.
The economic climate has toughened with sharp increases to everyday household staple foods such as budget pasta, bread and minced beef all soaring in price.
Energy prices have shot up as some forecasts predict the average annual energy bill could reach a whopping £3,244 average this October as Energy Regulator Ofgem increased the energy price cap to reflect the rising costs from energy suppliers.
The cost of fuel has also increased with Diesel now currently sat at 199p per litre, vs. 142p ten years ago in 2012. It has been widely reported in the UK that the average 50L car now costs around £100 to fill up to the brim with some larger vehicles exceeding this some time ago.
Changes to Stamp Duty during lockdown helped create an active housing market with house prices booming. The UK housing market sees house prices inflating at a rate that outstrips the increases to the average wage in the UK, during the same 3-year period.
These recent changes to the UK economy have created the “cost-of-living crisis” in the UK which we are now becoming accustomed to. During times of financial hardship, you may need to turn to creditors to borrow, depending on your financial situation.
Having good access to credit with low APRs depends on your credit score and history. If you have a thin credit file (little-to-no history) or a poor credit rating, potential lenders may see you as higher risk and only offer you higher interest loans or financing.
Tip to Try & Improve your Credit Score
If you are worried about the type of credit you may have access to due to poor, bad or no credit history, then you may want to try some of the tips below to see if you can improve your credit score.
Consider a credit building credit card – A credit building card is a credit card that has a low initial credit limit to restrict excessive spending and credit building cards typically have higher than average APRs. They are designed to allow small, scheduled repayments to demonstrate to potential lenders that you can make repayments in a timely manner. If you make over the minimum repayments on time, you demonstrate your creditworthiness and if done in conjunction with sensible financial habits, you can build your credit score.
Register for Electoral Roll – by registering to vote via the UK Government website you are showing creditors that you have a fixed abode, meaning a fixed address for professional communication. Creditors see this as a big positive and registering to vote can improve your credit rating for this reason.
Check your Credit File for Faults – You can obtain copies of your credit file from any of the Official UK Credit Rating Agencies (Equifax, TransUnion and Experian). Once you have your copy of your credit file, you may want to check for any errors, suspicious activity, or inconsistencies. If you spot an error, you can add a notice of correction to your file by explaining the fault, the circumstances that you feel may have caused the fault and why it may be inaccurate by directly contacting the Official Credit Reference Agency directly and asking for them for the next steps to have your credit file amended/corrected.
Check for Misinformation on Important Documents – As mentioned in tip 2, having a permanent address makes a big difference in the eyes of the creditor. Check your important documents and credit file that you have the same uniform address and that there are no typos on your address as these may then be seen as different points of contact for you and will result in a potential lowering in credit score, as you’ll look like you’re harder to contact.
Don’t Apply for Credit too Often – Every time you make a full application for credit a hitmaker is put on your credit file as a hard credit check has taken place. If you have too many hard credit checks in a short period of time, it can decrease your credit score. Soft credit checks don’t show as a hitmaker on your credit file.
Budgeting and managing your finances is an important consideration during harsher economic climates or slowing in consumer consumption if you’re a business. Whether you’re a consumer or a business; having some form of income and costs tracking sheet is a good way to ensure you have the capital and reserves to plan for the future.