I wanted to share with you guys something that I managed to achieve in 2017 that I’m pretty proud of. I improved my credit score by about 200 points and cleared off a huge chunk of my overall debt. Now obviously I’m no finance or credit expert (although I do work for a finance company – does that count?) but having researched the best ways to improve my credit score and pay off debt early last year, I do know where to start when it comes to building credit. This brief guide will show you how to improve your credit score in one year.
As I’ve mentioned time and time again, your twenties are the perfect time to follow your dreams and start building a life that you’ll be happy with in the future. But one of the things that can get in the way of pursuing those dreams and feeling as happy as we would like, is being in debt.
If, like I did last year, you’ve made some New Year’s resolutions to improve your financial position and get things back on track, then these tips might get you started.
Let me start my saying I’ve never been in debt in the sense of not being able to afford repayments. However in 2016 and as I entered 2017, I had a lot of finance agreements and credit accounts with online shopping websites like Littlewoods, not to mention credit cards that I’d use weekly. Things got to a point where my monthly outgoings were so high that I needed to do something about it. I also wanted to improve my credit score as it was sitting around the 300 mark, which although according to ClearScore is roughly the UK average, it could be much better.
If you fear you might have bad credit or debt it can be an all consuming concern, but it’s better to know where things stand and be in the position to deal with the challenges you face and resolve the issues rather than bury your head in the sand. The best thing to do is nip the problem in the bud at an early stage before it snowballs out of control.
I started checking my credit report
The first step is to check your credit report. I always use ClearScore because it’s free, simple to set up and the app is super informative. If it turns out you’re in pretty bad shape you might want to consider debt settlement as an option. This is where an external third party will negotiate with your creditors to see if they can reduce the amount of overall debt you owe.
The other thing to be mindful of is credit report errors. One of the first things I noticed when checking my report was that my ex-boyfriend was still linked to me financially as we used to have a joint bank account. A quick call to Equifax sorted it, but it turned out he was never removed from my record! Some credit reports contain errors due to simple administrative mistakes or sometimes more complex matters such as identity fraud.
I paid off my overdraft as a priority
I had quite a hefty overdraft as I entered 2017, but now there’s not much left to pay off at all. Like a lot people, I never saw my overdraft as debt because it wasn’t in the form of a loan or a store card – but it was still costing me £40 per month in fees. The sooner I realised this the sooner I started to think about my money differently (£40 per month going towards absolutely nothing is a lot of money). If you have an overdraft, you should definitely consider paying this off before anything else. Chipping away at it slowly month by month might be all you need to do. Plus if you get charged for using your overdraft by the day then your monthly fee will be reducing month on month.
I used a credit card every month
Sounds counterintuitive, right? Well actually, if you’re trying to improve your credit score then it’s quite the opposite. I wouldn’t recommend this to anybody who has credit card debt (or at least not until its all been cleared off) but for those of you that don’t already have a credit card or have one but don’t use it, I’d definitely recommend using it to make small purchases once per month.
Paying a credit card off in full and on time on a regular basis improves your credit score like nothing else. It shows you live within your means and that you’re sensible with money. I feel like using my credit card regularly is what improved my credit score month on month.
Getting back on track
If you have missed payments in the past, then stop worrying about it – the damage is done. All you have control over is the current moment which will directly affect what happens next. The best thing you can do moving forward is to ensure your bills are paid on time and that your direct debits don’t bounce.
The trick to getting back on track is to get up to date with your bills, even if that involves negotiating payment terms so that no further damage is done to your credit file (and then stay on track). A reasonably good option if you have multiple debts is to consolidate them into one affordable monthly amount with a debt consolidation loan, as this makes things a lot easier to keep on top of and takes a significant amount of the stress away.
Keep this up for a year and you should have a better credit score and less debt in no time. It just takes a little self-restraint and patience!