Building a good credit score and having a good credit rating is important when it comes to your ability to borrow money or having access to products such as credit cards, car loans etc. Your credit score is calculated from years of past behaviour that you can find on your credit report, not just your financial activity. You’ll find many places online, such as Experian or ClearScore where you can check your score for free. Hippo Motor Finance is here to explain why your credit score is important and we want to offer our tips on how best to improve bad credit.
But when your credit score is low, life can be difficult, as you have fewer options – you’re liable to be declined for finance agreements, and that can lead to an even worse score. So where to turn?
Hippo Motor Finance is a car finance provider that specialises in providing vehicle finance to customers of a wide range of financial and credit backgrounds – including customers with bad credit. We do this by working with up to 14 different lenders so that you have the best chance of approval for the best possible deal.
At Hippo, we want to secure the best deal for you, and you can achieve that by ensuring your credit score is as strong as possible. Follow our tips below to find out how you can improve your credit rating.
Using a credit card regularly and responsibly is key to building your credit score. Keeping your credit card active by spending small amounts and paying your bills off each month, makes you appear more reliable because it shows you can pay back borrowed money.
One major contributor to your credit score is how much credit you have versus how much you’re actually using. The smaller this percentage it is, the better it will be for your credit rating. Hippo Motor Finance’s recommendation is to keep your credit utilisation at 30 per cent or lower. If you have multiple credit card balances, consolidating them with a personal loan could help maximise your score.
Proving you are who you say you are is essential to getting accepted for finance and to your credit score. You can prove this through your bank statement, being on the electoral register, and having bills in your name.
A simple way of proving your identity and address is by getting on the electoral roll or electoral register. This can help improve the way you’re viewed by potential lenders and boost your chances of getting accepted for credit as it indicates stability to lenders. This is because registering on the electoral roll can verify who you are and where you live to credit reference agencies. This can be done even if you’re in shared accommodation or living at home with your parents. If your name isn’t on the electoral roll, you’ll find it much harder to get credit. If you haven’t signed onto the electoral roll, it’s a good idea as it’s free, takes five minutes and it doesn’t obligate you to vote if you’re not politically inclined!
Utility bills such as your gas bill also count as a form of credit and address history. They’re an easy and great way to show lenders you can pay your bills back reliably (as long as you pay on time). If you don’t have an account in your name (if you house-share for example), you won’t get the boost to your credit score, even if you’re contributing to the bills. So, it is always worth putting one or two utility bills in your name, which could help boost your credit score.
Being able to prove your address is immensely important for young adults and those who are new to the UK as finance plans typically require three-year residence history.
Having another person at your address with a poor credit rating will not necessarily impact on your rating unless that person is linked to you financially such as through a joint account or sharing a mortgage with missed payments, but if it is the case that you share financial commitments then you should look to ensure they are all managed properly and joint bills are paid.
Paying your accounts on time and in full each month is a good way to show lenders you’re a reliable borrower, and capable of handling credit responsibility. Old, well-managed accounts will improve your score. Even simply paying a phone landline or internet contract on time is a good way to prove to lenders that you’re capable of managing finances effectively.
In short, having the discipline to pay bills on time obviously affects how your score rates and, in turn, who will provide credit and at what rate.
Having a number of hard credit searches – particularly within a short period- is likely to reduce your credit-worthiness in the eyes of the credit reference agencies (sometimes called credit bureaus). If you are applying for credit, our advice is to try to use companies that offer a soft search facility where even if you are rejected for credit it will not affect your overall credit rating.
It’s not always possible to find companies that offer soft search when for example taking out a new mobile phone contract – as soft search facilities cost more than the old school hard search facility but where possible look for ones that offer soft search.
Having little or no credit can make it difficult for companies to assess your financial background, lowering your credit score as a result. This is a common issue among young people and people who are new to the country.
If you have a poor credit history, you might want to consider a credit-builder credit card. These are cards designed for people with little credit history, or those with a bad credit history. The credit limits are often low and the interest rates high. By using these cards and paying off the bills each month, you can prove you’re creditworthy, increase your credit score and apply for other cards and loans when your credit rating improves. Do note, the interest rates charged are much higher than those of a standard credit card. Typically, you’ll be paying over 30% interest a year, making it more important to pay off any balance in full each month to avoid ending up in debt and harming your credit rating further.
The same is true with credit cards – the hard search follows the soft search. If you have just received a credit card, don’t panic – just make sure you pay off the required amount every month and try to use less than 50% of the credit line. If possible, use less than 30%, as this is a great way to build your credit history and gives you a good credit profile because of something the industry calls ‘credit utilisation’.
What’s credit utilisation you ask? The bureaus need some way of measuring you against other consumers. This is where credit utilisation comes into play. If you are often maxed-out on your credit cards, the credit score companies look at this as you having a higher risk than other customers. So if you are well under your credit limit – this is estimated as using 30% of your credit limit, then you are likely to be scored higher.
Although it’s rare, identity fraud is becoming an increasing problem. This could potentially damage your credit score as you become responsible for the credit actions of someone else. Keeping an eye out on your credit report and looking out for any signs of fraudulent activity could help protect your credit score. If you spot a surge in the amount you owe, or any applications you didn’t make, you may be a fraud victim. If you’re ever a victim of fraud, your lenders should fix any damage to your score quickly.
There is no definitive answer to how long it’ll take to improve your credit score. This is because it’s all down to these two important things:
In general, credit history is built up slowly over time as you increase the number of on-time payments you make. The longer bills go unpaid, the greater the potential impact on your credit score. Any negative marks on your credit file will remain for at least six years. After that, everything is deleted from your file, including missed payments, defaults, bankruptcy and CCJs.
A higher credit score means companies see you as a lower risk, so you’re more likely to be approved for credit. This is because a high score indicates your capability of managing your credit sensibly and making repayments on time, making it all the more important to focus on improving your credit score if your rating is low.
Other benefits include:
Lower interest rates – If companies think you’re lower risk, they may offer you better interest rates on loans or credit cars, which can make borrowing cheaper.
Higher credit limit – If you take steps to improve your low credit score, you are likely to have a better chance of borrowing larger amounts from lenders. This could help when buying a new car, making home improvements etc.
Access to better deals – Whether it’s a loan, credit card or mortgage you’re after, a higher credit score means you’ll have a better chance of approval. You may have access to a wider range of credit offers and providers.
At Hippo Motor Finance, we know that our customers have a wide variety of credit scores. We also know that lenders use different credit agencies so they also often don’t see the same picture of your credit history. How do we help you? We have a wide panel of lenders, 14 in total, so you know that you are likely to be approved by at least one of them and if there is more than one that you are likely to benefit from a lower APR.
We also only use soft search, in the first instance, to check if you will be accepted so that there is no negative impact on your credit file and your credit score is protected.
Check if you will be accepted for car finance through our soft credit search today. To discuss your car finance requirements in depth, speak to your dedicated account manager by calling 01254 956 777.
We expect more than 51% of our customers to achive this rate.
|Loan Amount||Total Cost of Credit||Representative APR||48 Monthly Payments||Deposit Amount||Loan Term||Total Amount Payable|
|£7,500||£3019.16||19.1% APR||£219.77||£0||48 Months||£10,548.96|
We are a broker not a lender and our registered office is Trident Park, Trident Way, Blackburn BB1 3NU. Our contact number is 01254 919000