What is a credit score?
Your credit score lets lenders know how much you can be trusted to borrow their money. Information about where you live, how much you spend and whether you pay your bills on time helps credit reference agencies to calculate this number. A high (good) score means that lenders will trust you more, while a lower (fair or poor) score could cause you problems. Improving your credit rating means you’ll be offered better deals when borrowing and you’ll be more likely to pass credit checks when switching banks, applying for a mortgage or getting a new phone contract, for example.
You might be wondering, ‘how can I improve my credit score?’. It’s a good idea to start by taking a look at your credit file, so that you can fix any errors and avoid rejected applications. To get a free credit report, just sign up to one of the three leading credit referencing websites - Clearscore, Noddle or Experian.
How can Christmas help to improve your credit score?
If you want to prove to a lender that you can be trusted to pay off debt, the best way is to start small. Borrowing modest amounts of money over the short term and paying it back before it’s due can boost credit scores. Christmas is the perfect time for this. Using a 0% credit card can help you spread the cost of presents and food over a few months. This allows you to pay off the debt in a slower, more manageable way, while building up your credit rating.
Remember that the best way to avoid paying monthly interest on your presents is to get a 0% introductory purchase rate. When you have a higher representative APR, you’ll end up paying interest if you don’t pay off the card before the end of each month. It’s a good idea to set up a direct debit to clear your balance automatically.
What sort of Christmas purchases should you put on your credit card?
Christmas can be an expensive time of year and it may be tempting to pay for bills and other large costs, such as travel, with a credit card. However, you’ll probably find it easier to clear the balance if you only use it for smaller items like gifts and decorations. If you’re confident that you can afford the repayments, then using a credit card for products worth more than £100 will mean you’re covered by section 75 protection. If there’s a problem, you could get your money back, even if the seller can’t or won’t give you a refund.
It’s never a good idea to pay for bills with a credit card. You might intend it to be a one-off, but it’s better to talk to your service provider instead. They could be able to offer you some sort of assistance, or push back a payment, to help you afford an unexpected bill. If you’re having trouble, you can speak to a debt advice charity for free - there’s more information in our bad credit guide.
How often should you make repayments?
Whichever card you choose, you’ll need to make the minimum repayment each month - this amount is set by the lender. If you have a 0% introductory purchase rate, then slowly paying off some of the balance, on time each month, may help you to improve your credit rating. However, if your APR is above 0%, such as for credit builder credit cards, it’s wise to pay off the full amount on the card each month. If you don’t, then you’ll be charged interest on your balance and this will quickly add up, making budgeting more difficult.
While it’s usually better and cheaper to use a credit card, loans will also improve your credit score. They show lenders that you can pay off a larger debt over a longer timespan. However, if you have a poor credit score then you’re unlikely to have access to loans with a low APR, so it’s better to borrow from family and friends or compare credit cards.
Choosing the right credit card for Christmas spending
You might be tempted to snap up a Christmas store card deal at the checkout, but remember that these cards are like sweets. They’re placed next to the tills so that you’ll pick them up as an impulse, even though they might not be very good for you. If you want to get a great offer then you’ll need to shop around. Comparing your options will help you find a card that is both suitable for you and offers good value.
Choose Wisely has comparison tables for everything from Air Miles cards to cashback cards. If you’re getting confused by the jargon, we’ve also got a handy jargon buster to help you out! Just remember that it’s safer and more straightforward applying for credit after you’ve looked up your free credit score online.