Can I use retail finance to improve my credit score?

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‘I’ve never had to use credit – so my score must be pretty good, right?’ 


Whether it seems rational or not, the simple answer is: no, not usually. Why? Because credit agencies can only monitor your relationship with credit if you are, in fact, using credit.  


Many people think of credit cards when it comes to credit, but the truth is that there’s a wide range of finance options that count towards your score. Got a phone on contract? That’s credit. Got a mortgage? That’s also credit. Retail finance accounts like DivideBuy also appear on your credit rating – and if you’re paying them off on time, small purchases with retail finance can help to boost your score. 


Here’s how to use retail finance to improve your credit score. 


1. Choose finance providers that report to credit bureaus


Not all retail finance providers report your payment history to credit bureaus. Before using a retail finance service, verify whether they report to major credit bureaus like Equifax, Experian, and TransUnion. If they do report, this means your responsible payment behaviour will have a positive impact on your credit score. 


2. Be punctual with payments


The most critical factor in using retail finance to improve your credit score is making on-time payments. Keep track of upcoming payments and make sure you’ve set aside enough to cover them each month – for example at DivideBuy, we send text reminders before collection is due. Consistent, punctual payments will do wonders for your credit report. 


3. Keep balances low


Keep your retail finance balances low or, ideally, pay them off in full each month. High balances relative to your credit limit can negatively impact your credit utilization ratio – which is a significant factor in your credit score. 


4. Monitor your credit report


Regularly check your credit report to ensure that your retail finance payments are being reported accurately. You can get a free copy of your credit report from each of the major credit bureaus once a year – or use online credit monitoring services.


If you see something that doesn’t look right, be sure to get clarification from the agency to ensure you’re not a target of credit fraud. 


5. Avoid opening too many accounts


Opening multiple retail finance accounts within a short time frame can raise concerns with creditors and potentially lower your credit score. Make sure you limit your use of retail finance services to what is necessary and manageable, and if you do need to use it, try and find products you can purchase using one of your existing accounts.  


6. Diversify your retail finance mix


While retail finance can help with your credit score, it’s just one type of credit. A healthy credit mix includes various types of credit – such as credit cards, instalment loans, and mortgages. This doesn’t mean you should borrow money for the sake of it.


But if you’re on a specific mission to build your score, you could consider a credit-building card to use for small purchases and pay it off immediately – like your grocery shopping. Some apps also let you add your rent to your credit file, so if you haven’t got a mortgage, it’s worth doing some research into this. 


7. Use retail finance responsibly


Retail finance can be a great budgeting tool, but its extremely important that you never borrow more than you’re comfortably able to repay. Only use finance for purchases you genuinely need and can afford. Avoid the temptation to overspend just because it’s a convenient payment method.


If available, use tools like DivideBuy’s Eligibility Checker to run a soft credit search before applying for retail finance. This will help reduce the risk of being turned down for credit, which can harm your score. 


Remember: improving your credit score takes time. Even if you use finance responsibly, it might take several months to see a noticeable improvement in your credit score. But don’t give up! Be patient and continue to make responsible financial decisions – and you’ll be building and maintaining a good credit score before you know it. 


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