When you reach your mid-twenties, your financial life really starts to go up a notch. This is usually the time when you receive your first considerable paycheck, apply for a credit card and begin to take full responsibility for your expenditure. An important part of this step is establishing and building your credit score. We take you through the ins and outs of how to boost your credit score.

What’s a credit score?

Your credit score is a three-digit number used by lenders to determine your eligibility for finance such as a car loan. It is made by taking into account your credit history, which is a record of how you’ve managed your lines of credit in the past – the most common for people in their twenties being an overdraft, credit card, mobile phone contract and/or utility bill.

Your credit score affects what type of finance products you can get, and what interest rate you end up paying. Those with a higher credit score, for example, are seen as being a lower risk to lenders and so are more likely to be accepted for finance on a lower interest rate.

What’s a good credit score in your twenties?

Credit scores range from 300 to 850 – the lower your number, the worse your credit rating is. There are different evaluations of what determines a good credit score. One of the main credit reference agencies, Experian, generally considers a score of 700 or above as good. Having a credit score that is this high in your twenties is very difficult to achieve, as often there have been fewer opportunities to prove your creditworthiness. At this time, the average credit score is usually hovering around the 630 mark, so anything higher than this is highly beneficial.

How to boost your credit score

When it comes to improving your credit score, there are three essential rules you have to follow: make all your payments on time, optimise the way you use your credit and don’t open too many lines of credit.

Making all your payments on time is the important part of building a good credit score and is the first thing lenders will look at when evaluating you for a car loan. If you have a bad history of paying your utility bills, paying your rent, or making contract repayments (e.g. paying excess charges on your phone contract), there’s no reason for a lender to trust that you will make your repayments on a car finance agreement.

Optimising the way that you use your credit essentially means being sensible with your money. It’s a vital part of improving your score as it proves that you are financially responsible. You may well make all your payments on time, but if you’re maxing out your card every month or stretching your overdraft to the absolute limits, this is a warning sign for lenders. They could argue that the additional money to pay back on a car finance agreement, would be one step too far.

Opening many lines of credit (especially over a short period of time) can look suspect to lenders and could indicate to them that you need extra revenues of money to support your lifestyle. So, whilst it’s ok to have a few lines of credit, it’s best to only have what you need.

Whilst it’s not good to have too many lines of credit, you can improve your credit score by opening a credit building credit card account. This a card with smaller amounts of money on it, which you can use as an example to lenders of you being financially responsible. However, if you don’t make your payment and use the credit on this card excessively, you will harm your credit score. This is only recommended for those people that are financially secure, disciplined with managing their budgets, and want an additional way to improve their credit score.

Building a good credit score in your twenties is no easy task – you’ve just begun your financial life and you might not have had enough financial responsibilities to establish a good credit score. Don’t panic, there will be plenty of time to prove your creditworthiness, and as long as you follow the rules outlined above, you’ll get there in no time!

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 24.6%, annual interest rate (fixed) 24.57%, 47 monthly payments of £237.00 followed by 1 payment of £247.00 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £3,886.00, total amount payable is £11,386.00.

My Car Credit is a credit broker and not a lender.

Require more help?

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