How to improve your credit score: 10 simple steps
Making sure your credit score is in the best shape is vital for anyone looking to borrow money. Whether applying for a credit card or looking to get a personal loan, a poor credit rating could mean you’re charged higher interest, given a smaller credit limit or, at worst, rejected outright.
How to improve your credit score:
- Get your credit report
- Be on time with payments
- Get on the electoral roll
- Avoid too many credit searches
- Check if you're financially linked to someone
- Keep your details up to date
- Fatten up a thin credit file
- Improve your credit utilisation ratio
- Look out for fraud and identity theft
- Think about a credit rebuild card
It’s not just direct lenders and banks who look at your credit report and score. Fancy a new mobile? Your credit file could be something shops check before agreeing to a mobile contract. Or perhaps it’s insurance you’re after. Again, your rating could come under scrutiny before a policy is offered.
What is a credit score?
A credit score is a number used to reflect the information held on your credit report, it is a quick way for lenders to gauge how likely they’ll be repaid on time if they decide to lend to you. In other words, it measures your creditworthiness and helps lenders see if you would be a risk.
Knowing what is a good credit score can be confusing as there are three main credit reporting agencies, and each uses different credit score ranges. For example, the Experian credit score ranges from 0 to 999, while TransUnion credit score ranges from 0 to 710. Simply put, the higher the figure, the better – it means you’ll have access to more favourable terms on the money you borrow, which, in turn, can save you cash in the long run.
What is a credit report or file?
A credit file or report contains some personal information on you, your finances and your payment history over the last six years. As well as tracking obvious stuff like missed payments on loans and credit cards or utility company debts, your credit report will also contain details of people you’re financially linked to (joint loans, etc) and overdrafts on current accounts. It will also show how often you apply for new credit, and even if you’ve been victim of identity theft or fraud - which can happen through online scams and credit card fraud.
More general details include whether you’re on the electoral register, plus current and previous addresses. It doesn’t include student loans, council tax arrears or parking/driving fines – although some lenders may ask for this information separately when you apply.
Fortunately, there are plenty of options when you are looking at how to improve your credit score. Despite the fact that credit history, by its very nature, covers a long period of payments, you can take little steps from today to get it back on track.
It’s worth pointing out, too, that these are all things you can do on your own.
How to improve your Credit Score
1) Get your credit report
Knowledge is power, so it’s worth finding out exactly what’s on your credit report before figuring out how best to improve your credit score. The information is held by what’s known as a CRA, or credit reference agency. The three main credit reference agencies in the UK are Equifax, Experian, and TransUnion.
Although they each hold different credit files on you, the information they contain is fairly similar. Nevertheless, it’s advisable to check all three regularly. And be reassured that, unlike repeatedly applying for credit itself (which might suggest to lenders that you’re having problems getting it), frequently asking to look at a credit report isn't going to harm your chances of borrowing.
Perform credit score checks as often as you like (but especially before making any credit applications) and review your information thoroughly. Even the smallest mistake could have consequences for your score. If you spot errors, dispute the information and get it corrected straight away.
CRAs have a legal obligation to pass on your basic statutory credit report – and for free. You can get it online by visiting their respective websites.
For more comprehensive credit checking services from Equifax and Experian, including a full credit report and score, you can sign up for their free 30-day trials. But, remember to cancel before you’re locked into any subsequent monthly charges, if you don't want to pay for the service. Some credit reporting services like ClearScore and CreditKarma are free. You can also compare credit report options on MustCompare.
2) Be on time with payments
Not missing payments probably has the biggest impact on credit scores and, especially defaults in the last 12 months, as these will concern lenders the most. One way to avoid missed payments is to set up minimum repayments by direct debit. But it’s not just credit card bills or loans that you’ll need to keep on top of – phone bills, rent and utilities should also be dealt with on time. Set a calendar reminder or sign up for automatic payments.
3) Get on the electoral roll
Don’t wait for reminders at election time to get registered – signing up today at gov.uk can positively impact your credit score if you’re not already on the electoral roll.
Why is registration so important? Credit reporting agencies use information from sources like the electoral roll to check your details. If information is incomplete, inconsistent or missing in your credit report, it will likely hurt your score.
Another point is lenders need correct and up to date details before approving a personal loan or credit card application. Lenders use the information on your credit file to verify your address and ID. And, of course, if you’re eligible or meet the conditions to register to vote, then you’re legally obliged to register – or risk being fined.
If you aren’t eligible to vote in the UK, you can still help your cause by sending all three CRAs proof of residency and asking them to add this to your report. A copy of a recent utility bill or your driving license should do the job.
4) Avoid too many credit searches
Whether you’re accepted for a loan or not, applying for one leaves a search on your credit report that can negatively impact your score. These "hard credit checks", as they’re known, remain on your credit report for two years.
Hard searches can be seen by other lenders who check your report. Too many hard searches may look like you are desperate for money or that you're struggling - and therefore a potential risk.
You can still shop around without leaving a financial footprint by asking lenders for a ‘quotation search’, also known as a soft search. They’ll still be searching your credit record, and you’ll still find out whether you’re likely eligible for credit and receive a quote, but other lenders won’t see it. If you do agree to proceed with the full application, then it is likely a full, hard search will be performed.
Interestingly, deciding to pay for insurance in monthly instalments (rather than upfront) will likely necessitate a hard search, which will inevitably affect your credit score. Wherever possible, pay the full amount. Before proceeding with any credit application, it's worth checking whether it's a hard credit check or soft credit check that will be performed.
5) Check if you're financially linked to someone
If your partner or the person you share a flat/house with has a poor credit score, try to keep your financial activity separate so that their rating doesn’t bring yours down too.
If you’re already financially linked to someone (whether through a joint mortgage or loan or a joint bank account), and subsequently split up or move out, you can write to the CRAs to ask for a notice of disassociation or find the relevant forms online. You’ll need to have closed any joint accounts by this stage and paid off any joint loans.
6) Keep your details up to date
It doesn’t matter where you live, but how often you move to a new house could affect how lenders view you. Lenders love stability, so living at a single address for a long time will stand you in good stead.
If you have moved house, update your address with any credit, bank or phone provider you still have dealings with. Even if it’s an old contract, account or a card you never use anymore, they’ll still appear as ‘active’ on your credit report and being listed against a different address will sound alarm bells. Go through your credit report thoroughly, checking every detail.
7) Fatten up a thin credit file
Sometimes, a credit score will be low simply because lenders don't have enough information on your file to accurately assess your potential risk. This is particularly true for young people – and can be easily remedied. Getting a credit card is one way to establish a credit history. You’ll probably only qualify for one with a low spending limit for the very reasons outlined above, but using it for small transactions and paying the balance in full every month should help establish a reliable profile.
If you've not used credit cards before, you may find our guide on how to use credit cards responsibly helpful. You can also compare credit cards free on MustCompare. Having a mobile phone contact is another way to build up your credit history.
8) Improve your credit utilisation ratio
Something else which can impact on your credit score is your credit utilisation ratio and credit closing balance. Credit utilisation ratio gives lenders an idea of how much of your available credit limit you actually use. For example, if you’ve got two credit cards with a combined maximum limit of £4,000, used £2,000 of your available credit and repaid only the minimum amount of 3%, your credit utilisation will be 47%.
Your closing balance is your previous balance minus what you’ve paid off, plus any additional purchases you have made since. Ideally, you want to pay off your balance in full each month, if not possible the lower the balance left to pay the better, as far as lenders are concerned. Typically, 25% or less leftover to pay will be judged favourably. It may be worth keeping some credit cards open – providing doing so doesn’t cost you any money – as your ratio will be improved by the fact you’ve got a bigger credit limit but aren’t tempted to dip into it.
9) Look out for fraud and identity theft
Spending habits aren’t the only ways a lender will assess your suitability – they’ll also carry out anti-fraud checks to make sure your application is legitimate. That’s why it important you regularly check your credit report for fraudulent activity and if you notice someone’s applied for a short term loan or card without your knowledge, that you contact the CRA straightaway to fix it.
If you’ve been a victim of identity impersonation or credit fraud, you’re going to have something called a CIFAS marker on your report, which will stay on file for 13 months. It’s not necessarily a problem with lenders who carry out manual checks to prove you weren’t the perpetrator, but in the case of store finance, for example, where the process is automatic, it could be a red flag and hinder your application.
Fraud and identity theft can happen in many ways. Being cautious online and taking your time to double-check things, especially if you are being asked for personal details, can help you identify an online scam. Keep your phone safe, and make sure only you can access your apps. If your mobile is stolen with banking apps, act quickly, get it blocked, and restrict all access to apps.
10) Think about a credit rebuild card
Finally, if you’re looking to counteract some bad credit patterns with proof of more responsible financial management but are struggling to find a lender because of your track record, you might consider something called a credit rebuild card, which are sometimes called low or bad credit score credit cards.
Normally, these cards come with high-interest rates and low credit limits due to the risks involved for lenders. However, use it savvily (by repaying the card in full each month and never withdrawing cash to avoid being charged interest) and it’s possible to make quite a difference to your credit score within a year.
Another option is a credit-builder prepaid card, especially if you’re worried about being rejected for a normal credit card. There are no credit checks when you apply for a UK prepaid card, nor will you be asked for proof of income. By opting into the credit builder service, however, the provider will effectively lend you a year’s worth of monthly fees. There is usually a setup fee to pay for this service, some providers may let you choose the amount you pay each month, while others collect a monthly fee as part of the payment (usually between £5 and £10). If you repay these promptly and in full you should start to improve your credit rating.
Concluding
Getting a good credit score takes time. The good news is that it can be done, and there are no big secrets. Make sure you make payments on time and that the information on your file is correct. Avoid multiple applications for credit in quick succession, keep your credit utilisation ratio low and check your credit file regularly. Taking these simple steps will help improve your credit score over time.
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