Your credit score plays a really important role in your day-to-day finances. Your credit record affects your ability to access credit, including loans and credit cards, as well as the interest rates you’ll be charged. A strong credit score can save you a substantial amount of money, as you’ll be able to access the products and rates reserved for people who have proved that they are a good risk. If you have been turned down for credit, or are applying for a position which involves identity verification or a credit check, it’s a good idea to find out what is on your credit file, and work out what you can do to make your financial situation look more attractive.

Check Your Credit Report

The first step in improving your credit score is obtaining a copy of your credit report. You’re entitled to ask for one free report every year from each of the major credit agencies. (Equifax, Experian, and TransUnion). Scan each report for mistakes, such as accounts which don’t belong to you, or late payments that were actually made on time. If you notice any errors, lodge a dispute with the credit agency.

Payment History

Your payment history is the single most important factor affecting your credit score. Experts estimate that this alone accounts for 35% of your total score. Late payments stay on your credit report for up to seven years. Consider setting up automatic direct debit payments or use reminder apps on your phone to make sure you never miss a deadline.

Pay off Your Credit Cards

Your credit utilisation ratio looks at the amount of credit you’ve used compared to your credit limit. A high ratio can negatively impact your credit score, as it appears you are overly dependent on credit. Try to keep your ratio below 30% by either paying off balances or increasing your credit limits.

Don’t Close Dormant Accounts

Surprisingly, closing a credit card account can have negative effects on your credit score. It reduces your available credit and can increase the percentage of credit you are using, as discussed above. If you have an inactive credit card, it’s wise to keep it and use it every month or so to keep the account active.

Build Your Credit History

Many young people who are just starting out have a limited credit history. There is just not enough information about them for the agencies to come up with a solid credit score. Think about getting a credit card with a very low balance, which you then pay off every month in full. This will help prove to lenders that you can be trusted and will help you start to build your credit history.

Improving your credit score is not a quick fix but has many long-term benefits. As long as you manage your money responsibly, this will pay off eventually. Remember to regularly check your credit report and keep on top of making payments on time every month to avoid damaging your hard work.