The coronavirus pandemic has wreaked havoc on people’s personal finances this year amid rising redundancies and record unemployment in the UK.
In October independent credit broker TotallyMoneyFinancial warned that victims of the health crisis could see their credit scores suffer for as long as six years.
Late payments and defaults remain on credit files for six years, making it harder for people to get accepted for mortgages, credit cards, mobile phone contracts and to pay utilities by direct debit. It could also drive up the cost of car insurance.
Due to this, many Brits may be looking to improve their credit score next year.
Loans, credit card and mortgages business Ocean Finance has created a guide which highlights the best ways to improve credit scores for good.
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.
Don’t open a new credit account for six months, and you’ll boost your credit score by 50 points.
Have a variety of different credit types to prove you are a reliable borrower, for example, one credit card with a consistent balance and payment amount, have one loan, a mortgage and one store card (if these are all necessary).
Use free eligibility checkers to see if you will be accepted for credit before applying.
If you are applying for credit, choose the timing carefully. If something is about to expire on your report, it may be worth waiting until afterwards.
Keep a fixed address – anything over three years looks more favourable.
Get a credit rebuilder card if you have a poor credit history or none at all. These come with a low, manageable limit and can help build your credit score.
If you have some high-interest debts that you’re struggling to pay off, consider a debt consolidation loan.
Avoid payday loans if you want a mortgage.
Avoid using overdrafts – authorised or unauthorised – as it’s classed as a form of borrowing.
When paying your credit card, pay more than the minimum if you can.
In addition, two payments per month on credit cards, as this suggest you’re paying over the minimum.
If you’ve suffered financial problems in the past, consider a pre-paid card where you load the card up with cash and use it like a credit card.
Pay off existing debt before applying for more credit whenever possible. Having a lot of outstanding debt is no favoured with lenders when asking for more credit - it is usually one of the biggest factors that affect your credit score.
Pay for your car insurance monthly by direct debit as opposed to one annual payment.
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It comes as earlier this year it was revealed that millions of consumers could end up paying more for borrowing due to the damage done to credit scores during the COVID-19 pandemic.
The research from money site Credit Karma UK found that someone going from a strong (the equivalent of 610 or above) to poor (of 550 or below) credit score could face paying an estimated £2,690 ($3,485) a year more in interest on any new borrowing, until they partially or fully recover their credit strength.
Even recovery to a medium score (of around 580) could still mean paying additional interest charges of £740 a year until prime status is regained — meaning consumers who see their scores damaged during the economic fallout of COVID-19 could still find borrowing more expensive years after the crisis passes.
At the other end of the scale, “thin-file” consumers who have a poor score due to lack of any proven track record can also often find it difficult to secure credit or have to pay higher rates as a result.
This is particularly prevalent among young people who have an aversion to borrowing.
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