Usually, advice about boosting your credit score comes down to smart use of a credit card, increasing credit limits, and lowering APR %. What are the other means to increase your credit score which do not fall into sharia grey areas?
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@ReeceByfield before diving into how to increase credit score (something which I’ve never really thought about too much but remember faintly it being mentioned back in a high school lesson on finance once), my question would be: WHY would I need to increase my credit score in the first place?
I think you’ve raised an interesting question @HassanTariq
One issue we have is that we operate in a financial system and a global societal culture that facilitates and encourages living beyond one’s means in many a way, and thus facilitates debt.
One key way to improve credit scores is to pay off owed debts, but in this case and something often rarely said, to avoid more debt first!
I recall Sheikh Umer Suleman mentioning the importance of Muslims being wary of even Halal financial products that facilitate debt.
@Khalil I agree that most of us do indeed live beyond our means (I mean how many people have £30k lying around to pay for their tuition fees?) and generally I am sympathetic to the notion that debt should be avoided where possible (I recall that historically it was looked down upon- hence the German word for debt also means guilt).
However, there are surely halal ways of acquiring debt which don’t involve credit cards (which still allow people to live beyond their means). For example, through Rotation savings and credit associations ( common in south asia) and interest free loans- I’m not sure if paying back interest free loans before you start to acquire interest/exceed the interest free limit is a way of improving credit score.
Hence I’m still not totally convinced that there is a need to improve one’s credit score.
I feel like increasing your credit score is synonymous with being eligible for cheaper loans (ie. the more creditworthy you are the better interest rates you’ll likely be offered). As a result I’m in agreement with @HassanTariq that it’s not really a worthwhile endeavour in the first place
I think certainly if one has the luxury of even finding an interest fee loan (!) in todays world, will not benefit from increasing their credit score by paying it off quicker. Though I do believe that applies to very few people.
I’m unsure how student loans exactly impact credit scores but I would imagine they are possibly exceptional due to their setup.
As for all other loans than the above 2, I imagine a) reassessing future payments so as to reduce future debt and b) paying debts quicker (which is actually facilitated by a) would still help improve credit scores?
Though I hope that the number of Muslims (or people in general) that are taking loans beyond the first two are very few if not none.
Can anyone clarify how student loans impact credit scores? I never took one so am not aware of their impact.
So apparently student loans have little impact on credit scores. This is from the government’s website:
“Student loans are different from other types of borrowing because they do not appear on your credit file and your credit rating is not affected. However, if you apply for a mortgage, lenders may consider if you have a student loan when deciding how much you can borrow”
Another point to add to @Khalil’s (one which I just recalled) is credit score may potentially matter even if someone wants to pursue interest-free finance opportunities (i.e. buy a car on interest-free finance). Does anyone know if having a good credit score is necessary for such interest free financing opportunities?
Credit scores are important for things like renting, your credit is a reliable indicator as to whether you will make rent payments. If your credit score is low, you will need a guarantor or may not be able to rent certain properties at all. So it is something we should care about.
JazakAllahu Khayra for clarifying about student loans @HassanTariq
Another personal preventative tip I’d share for improving credit score:
A lot of credit scores are built on machine learning models that attempt to predict your likelihood of missing a bill or payment in the next 24 months given your track record.
An easy way to ensure you’re keeping up with your bills is to make sure you have direct debit setup. We moved to a new house recently and accidentally missed/delayed payments for water/gas/electric bills by a bit because direct debit wasn’t setup!
There are multiple things that are halal for us that a credit score can impact. For example, rent, mobile phone contracts, sharia-compliant car leasing etc.
There are companies like Loqbox and Pave which give you an interest-free loan cheque and you make monthly payments showing regular payments and a credit allowance. But tbh I don’t know if they are halal, anyone know?
Assalamu alaykum akh, I did a non-interest finance, and unfortunately (or maybe fortunately for them) they checked my credit score and alhamdulillah it was good. There must be a cut-off point as to when they accept.
As long as you keep your account balance positive and make payments on time you should have an average score. Plus this agreement you did, should boost your credit score.
A halal way to add credit score is to just keep spending but the biggest advice is to never go into overdraft! My one went from 95% to 80% because I left it for like a week. Might not have been for that but my credit score definitely went down.
Spending can negatively impact it if you have a significantly low balance. You want to keep a little cash in your account.
Honestly, the best way to get your credit score up is with a credit card, and making the payments in full each month so no interest. Yeah, when you first get the credit card your score goes down for a month, but it starts shooting up as you pay in full and the company gives you a higher balance. I don’t think it would be haram if you don’t pay any interest.
Assalamu alaykum, some landlords don’t even accept guarantors anymore, or at least some landlords don’t. It isn’t good for business for them and not worth the hassle. Although, if they go through a company that does it for them, this would decrease the hassle but who wants to pay extra for that nowadays? Credit score is so important these days!
So a lot of landlords nowadays do not want to deal with the hassle of renting their property so they give the property listing to the company who will then find the tenant and do all their due diligence which includes doing a credit check. This way landlords get their rent without the hassle but they pay a fee to the company or a percentage. Some companies do Service accommodation and they check your credit score too even for a couple of days, so no matter what you do, your credit score will 100% be checked and guaranteed.