A credit score is a crucial financial indicator that determines your ability to secure personal loans, credit cards, car finance, and even mortgage a home. If you’ve been trying to improve your credit score but seem to be getting nowhere, there could be underlying issues hindering your progress. Below, we explore five key reasons why your credit score might not be improving and offer practical tips to help you get back on track!
1. You’re Missing Payments.
Consistently missing repayment deadlines, even by a few days, can severely impact your credit score. Payment history is one of the most significant factors lenders consider when evaluating your reliability. If you find yourself, struggling to keep on top of payments, set up direct debits or automatic payments to ensure you never miss a due date. You can also use calendar reminders or budgeting apps to keep track of upcoming obligations. If you’re income is no longer enabling you to repay existing payments, you should always contact the lender and discuss your situation, rather than simply missing the payments.
2. Your Credit Utilisation is Too High.
Credit utilisation ratio refers to the percentage of your available credit that you’re using. If your credit cards are close to their limits, this could signal to lenders that you’re overly reliant on borrowing. Aim to keep your credit utilisation below 30% of your total available credit. For example, if your credit limit is £10,000, try not to borrow more than £3,000 at any given time. Paying off balances in full each month can also help reduce utilisation and leave you with more in your pocket each month.
3. You’ve Recently Applied for Too Much Credit.
Every time you apply for credit, lenders perform a “hard search inquiry” on your credit report. Multiple inquiries in a short period can make you appear desperate for credit, which could lower your score. If you’re looking to get finance or credit, you could try spacing out your credit applications and only apply for credit when absolutely necessary. Before applying, use eligibility checkers that perform “soft inquiries” to determine your chances of approval without negatively impacting your score. Or you could use a finance broker, who compare lenders and deals on your behalf, and you only need to apply with them the once!
4. Errors on Your Credit Report.
Did you know mistakes in your credit report, such as incorrect personal information or outdated account statuses, can drag down your score? These errors might not even be your fault but could result from administrative mistakes or fraudulent activity. However, it is imperative all the information listed on your credit report is accurate and up to date.
You should get into the habit of regularly checking your credit report for inaccuracies by accessing it through FREE credit reference agencies like Experian, Equifax, or TransUnion. If you spot any errors, dispute them immediately to have them corrected.
5. Lack of Credit Diversity.
A limited credit history or having only one type of credit account (e.g., just credit cards) can prevent you from demonstrating your ability to manage a variety of credit responsibly. Sometimes you have to get credit to get better credit and diversify your credit portfolio by responsibly using different types of credit can help to improve your score. Personal loans, credit cards, car credit, mobile phone contracts can all be considered. Ensure you can manage these commitments without overextending yourself financially.
What to do next:
Improving your credit score is a marathon, not a sprint. Here are some additional strategies to help you in the journey:
- Register to Vote: Being on the UK electoral roll makes it easier for lenders to verify your identity, which can positively influence your credit score.
- Keep Old Accounts Open: Closing old credit accounts can shorten your credit history, which may harm your score. Unless there’s a compelling reason to close them, keep them active to show a longer credit history.
- Demonstrate Stability: Lenders appreciate consistency, so keeping your address and employment details up to date on your credit accounts can work in your favour.
- Avoid Payday Loans: Relying on short-term loans can be seen as a sign of financial instability, even if you repay them on time.
Improving your credit score takes time, persistence, and a clear understanding of the factors influencing it. By addressing the issues outlined above and adopting these practical tips, you’ll be well on your way to achieving a healthier financial profile. Remember, even small changes can have a significant impact over time, so stay patient and consistent in your efforts.
