Taking out a new credit card can be a helpful way of building up a good financial history – but are there other ways of improving your credit score?
If you have a low or bad credit score it can be difficult to start improving your credit rating again. In this guide, we explain how you can build your credit rating without taking out a credit card.
Many people would have heard of ‘credit builder credit cards’ or ‘bad credit credit cards’, which are essentially the same as any ordinary credit cards except they have been designed for people who have struggled to get approved for credit in the past.
This means these credit cards usually have a higher than average rate of APR and a lower spending limit to minimise the risk to the credit card provider, but to also make it easier for the customer to manage. The idea with credit builder credit cards is that the more repayments you make, the more proof there is of you being able to sensibly manage money and thus improve your credit score.
Your credit score is based on your financial history. Any debts you have repaid or failed to repay on time (or at all) will show up in your credit report.
Your credit report is what all loan providers use to check that you are suitable for their mortgage, credit card, loan, overdraft or any other type of credit product.
Some future employers might also check it to see how reliable you are so it is really important to have a good credit score.
So naturally, you might be wondering, how do I improve my credit score without a credit card? If you have struggled with debts in the past and do not feel comfortable taking out a new credit card or loan to improve your credit score, there are other ways.
Read on for our tips on how to build your credit rating without taking out a credit card. After that be sure to check out your *credit report* to see what and how much you need to improve. Checking your credit report can also be good to see what your risk is for identity fraud.
Many credit reporting companies can show you how much of your personal information is available online and reduce the risk of you becoming a victim of identity fraud, which could be costly to your finances as well as your chances of getting credit again.
Tips for building credit without a credit card
While proof of making debt repayments is the most common way of improving your credit score, it is not the only way to build your credit rating.
Here are our tips for building your credit score without taking out a credit card:
Get on the electoral register
This is the most basic and most useful thing you can do to improve your credit score if you haven’t done so already. This is essentially registering to vote. Even if you have no desire to vote, it is imperative you do this, as it is a confirmation of the address you live in.
It is almost absolutely certain that you will not be approved for any credit card if the address you put in the application is not the one you are registered to vote in. You can get yourself on the electoral register by registering to vote online.
Put your name on more of the household bills
If you share the cost of the bills with your partner or someone else at home, put your name down as the bill payer for more of them. Many people will pay their share of the bills without actually being listed as the bill payer, which will make no contribution to their credit score.
Essentially, it means there will be no record of it. Most utility bills like energy and gas show up on your credit report if you are listed as the bill payer. If you are listed as the bill payer and repay them on time regularly then this will improve your credit score.
Similarly, if you have a mobile phone contract rather than a pay as you go phone, repaying this regularly will also improve your credit score as it also shows up on your credit report.
Clear your outstanding debts
This may seem obvious but any debts you still haven’t paid can also contribute to you having a lower credit score. Build up your credit by clearing these debts as soon as possible. It will soon show up on your credit report as a repaid debt, which should contribute to your credit score going up.
Close credit cards and accounts you don’t use
Do you have any credit cards in your wallet that you took out and haven’t used in years? Close down any accounts that you don’t use anymore. If there is no activity and you don’t plan to use them again anytime soon, there is no point in having them.
This is because when lenders check your credit report they aren’t just looking at how much money you owe. They are also looking at how much money you could potentially be borrowing at one time.
If you are applying for a new credit card with a limit of £3,000 and you have three other credit cards that you haven’t used in years but when combined give you a total borrowing power of £9,000, the new lender will assess what the risk is of you having access to £12,000 in credit.
They will be asking themselves, if this person were to suddenly borrow all of that money, would they still be able to repay their debt to us? So make sure any accounts you don’t use are closed down as this could also look like you are desperate for even more money to borrow – if you already have credit you can borrow, why apply for more?
Check your credit report
When you check your credit report you will be able to view your financial history from the last few years and see what immediately needs to be improved.
You will also get a better idea of what aspects of your history might be problematic. Missed payments, for example? Paying off a few more bills on time could slowly rectify that issue. Perhaps just as important is to check that there are no errors on your credit report.
Unfortunate as this is, errors do happen. For example, your credit report might say you exceeded your credit limit with a particular credit card, but you know this never happened. If you hadn’t checked your credit report you would have never known.
Read our guide on how to dispute your credit report to see what you can do if you spot an error in your credit report.
Can you have a credit score without a credit card?
Essentially, any type of credit is going to form the basis of your credit score. Not having a credit card or having never borrowed money in the past is likely to give you a lower than average credit score. However, as mentioned previously, there are some basics that will go a long way to prove you can be trusted with credit.
Simply registering to vote, closing old accounts and putting your name on more of the household bills can improve your credit score. But ultimately, future lenders like to see you how you handle debt. Getting a credit card can be the easiest way of slowly easing your way into it and building up your credit score.
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