This post is aimed at people who would like to build up there credit score and build a good credit report in the UK. This is not aimed at people who have completely screwed up there credit history and report, though the same principles below will help improve it moving forwards.
Lets define what credit is : Credit is the ability to make payments over time, you need to show that you can pay balances off over a period of time.
Do not just go and get a loan and pay it off 3 days later as this will not show that you can make payments over time. Instead get a loan and pay 2/3rd of it off and then pay the rest in instalments every month.
lets define your Credit Score, your score is just a number based on criteria that the credit reference agency use. This is used to predict how likely you are to make payments in the future.
Its based on the following:
35% – History – This will show if you have made payments successfully on time over a sustained period of time.
30% – Debt Ratio – This is the amount of credit available to you vs what you have spent, this ratio should be as low as possible
15% – Age of Accounts – This is the avg age of the credit accounts you have, providing you have never missed a payment this will have a positive effect on your report
10% – Mix of credit available to you – having 2-3 credit cards and a loan that you are able to pay off every month will have a positive impact on your report
10% – inquires – credit searches by credit companies. you should have as little of these as possible
Building credit – take out small loans and pay half the balance back and then pay 20 one month 50 next 30 next. if you can not get “credit” go to a bank and get a secured card, this is where you give the bank some money upfront and they put this on a card, this helps establish history.
How to pay on credit – Only use 10%-30% of your balance, so if your balance or available credit is £3,000 set your self a limit of £900 a month and do not spend more then this limit. you must be able to pay off this new limit in full every month.
Following some of the guides above should help you improve your report and scores