Perhaps you’re preparing to take out a mortgage so you can pay for your first home. Or maybe you’re thinking about increasing your credit card limit so you can pay for a new car or a much-needed trip away. But before you apply for that mortgage or credit limit increase, it’s important that you understand your credit score.
Before a lender will offer you credit, they will check your credit report using a credit reference agency (usually Equifax, Experian or TransUnion) to see whether you’re a responsible borrower and work out how likely it is that you’ll pay back what you owe. Your credit report will give them vast amounts of financial information about you, for example, how much you owe to other lenders, how many applications you’ve made for credit and whether you’ve paid off previous credit on time.
Credit scores are worked out by giving a certain number of points to each of the facts on a credit report and then adding them together to generate a total score. If a creditor can see from your credit report that you’re a responsible borrower, they will use their own internal system to give you a good credit score and will therefore be more likely to approve your application for credit. A low credit score can not only mean that your application is rejected, but it can also affect your chances of getting jobs in certain industries, such as finance and law.
The good news is that your credit score can be improved. In this article, we’ll give tips on some things you can do that can have a positive impact on your credit rating.
What can I do to improve my credit score?
Some of the ways you might be able to improve your credit score include checking that your credit report is accurate and up to date, making sure your address is correct, registering to vote, paying bills on time and ensuring you don’t max out your credit limit.
It may also help to remove financial links with other people — especially if they have a poor credit score themselves — minimise your applications for credit, use a variety of credit options, and cancel unused credit cards and store cards.
Continue reading to find out more about these top nine tips for improving your credit score.
Nine ways to improve your credit score
There are many ways in which you may be able to improve your credit rating:
1. Check your credit report
The first thing to do when trying to improve your credit score is to check your credit report on websites like ClearScore, Credit Karma and MSE Credit Club. This is so you can see whether everything that creditors are being told about you by the credit reference agencies is up to date and accurate. If anything is incorrect, you can flag this to the relevant agency, who will then investigate it and, if it is found to be an error, update their records.
It’s a good idea to check all three of the ClearScore, Credit Karma and MSE Credit Club sites, as the information each of them holds about you is based on data from a different credit reference agency. It’s also worth noting that your credit score can be different for each one, so just because one lender rejects your application, it doesn’t necessarily mean that another one will.
These sites will also give advice on which changes you can make to improve your score.
2. Make sure your address is correct
Even a typo in your address can negatively impact your credit score, so it’s important to ensure that your current address is listed correctly on your credit report. Being at your current address for a long time can positively impact your rating, as it suggests that your circumstances are stable.
You should also ensure that any old addresses that may still be on file are removed. If, for example, there’s an old mobile phone contract listed as active on your credit file and the address is different to your current one, your credit application could be hindered due to ID checks.
If you move house, remember to register to vote at your new address straight away, as councils send voter information to credit reference agencies every month. This means you could see an improvement in your credit score within eight weeks of making the change.
3. Register to vote
As mentioned above, being on the electoral roll is another way to help improve your credit score. But even when being on the electoral roll isn’t a factor in scoring, not being on it can lead to delays with your credit application because lenders use it to verify your identity and home address.
Registering to vote only takes about five minutes, but it can have a positive impact, so it’s well worth doing. Bear in mind that while you can opt out of the ‘open register’ — which can be used for marketing purposes — credit reference agencies have access to the ‘full register,’ which you’re required to be on by law and can’t opt out of.
4. Don’t miss payments
If you miss payments, pay late or default, it suggests to lenders that you’re struggling to manage your finances and that you may not be able to pay back what you owe. Even missing just two payments can negatively impact your credit score for years, and defaults within the last 12 months are the most damaging.
While staying on top of your car finance, credit card, loan, mortgage, and overdraft repayments will help to improve your credit score, paying your mobile phone contract, store card, TV subscription and utility bills on time will also increase your chances of being approved for credit.
The best way to do this is to pay for everything via direct debit, so you never miss payment due dates. Plus, just setting up direct debits to make regular payments can improve your credit score (provided you have enough money in the account, otherwise it could damage your credit score). Alternatively, you can contact your lender to see if they can change your payment date in order to manage your cash flow better. Just be warned that while changing your repayment schedule is better than defaulting on your payments, it will have an impact on your credit score.
5. Don’t max out your credit limit
People who have never borrowed before may find that they have poor credit scores. This is because there’s no evidence to prove to lenders that they are capable of borrowing money and then paying it back. But being in debt can be equally damaging — if not more.
If you have a lot of debt and you’re constantly close to your credit limits, lenders will assume that you rely on credit. It’s even worse if you exceed your credit card or overdraft limit. So try to spend less, aim to pay off your debts and keep your credit utilisation low. ClearScore recommends staying below 70 per cent of your credit limit to show lenders that your borrowing is under control.
6. Cancel unused credit cards and store cards
While being close to your credit limits can damage your credit score, having lots of available credit can be just as harmful.
So, if you have multiple credit cards with available credit and unused bank accounts with untouched overdrafts, it might be best to cancel some of them to lower your available credit.
Think carefully about which ones to cancel, though. If you’ve had an account with good credit history for several years, it can be beneficial to your credit score, so it will probably be best to keep that one open.
7. Remove financial links with others
Whether it’s an ex-partner or an old flatmate, removing all financial links to others may also improve your credit score. You should also cut ties with any current partners or flatmates if they have a poor credit history. This is because lenders will access their credit reports when assessing whether they should accept your application.
This means closing shared bank accounts, settling joint loans and removing your name from utility bills and joint mortgage accounts. You may find it difficult, but doing so could boost your credit rating within one month.
Once you’re no longer linked to them financially, you should contact the credit reference agencies and ask them for a notice of disassociation. Remember that you’ll need to contact each agency separately to ensure that all lenders are aware of the dissociation.
8. Minimise credit applications
Whether it’s a credit card, a loan, a mobile phone contract or paying monthly for your car insurance, every application for credit leaves a footprint on your file for a year.
Multiple applications for credit over a short period of time can negatively impact your credit score as it makes you look desperate. So if you’ve been turned down, wait a while before applying for further credit.
Prioritise which credit products to apply for first, and be smart about when you apply. Always check your credit report before making an application, so you can see whether any County Court Judgements (CCJs), defaults, Individual Voluntary Agreements (IVAs) or bankruptcy problems are about to expire (which they do after six years) — in which case, hold off until they do. You should also note that any big life changes that will affect your earnings (such as maternity leave or an impending redundancy) can have a negative effect on your credit score, so apply for the credit before this change occurs.
It’s important to be aware of the fact that unlike ‘hard’ searches for credit, ‘soft’ searches will only appear on your credit file to you, and lenders won’t be able to see them. So, if you just want a quote for a loan, it’s worth asking whether the lender can do a ‘soft’ or ‘quotation’ search rather than a ‘credit’ search. This will help give you an insight into your eligibility without risking your credit score.
9. Use a range of credit options
If you borrow from a range of sources, it demonstrates that you’re capable of managing different types of borrowing.
Some of the different types of credit products available are:
- Bank account overdrafts
- Credit cards
- Loans
- Mortgages
Just remember what we said above, though, and avoid applying for several of these in quick succession — especially if you’re rejected for credit.
If you have a non-existent or low credit rating, you need to build your credit history to prove to lenders that you are a responsible and trustworthy borrower. The problem for people with poor credit scores, though, is that being approved for credit can be especially difficult. In this case, a credit-building card could be the answer. These credit cards are designed for people with a low or no credit score, and if you use them carefully, they can help increase your credit score and prove you’re creditworthy, so you can apply for other types of credit when your rating improves. The interest rates on these cards are much higher than regular credit cards, so it’s vital that you pay your balance off in full every month, so you’re not charged. Otherwise, you could end up in a worse position with an even lower credit score. If you use your credit-building card wisely, you could start seeing an improvement to your credit score within six months and an even bigger difference after a year.
Key takeaways
Not only does your credit score determine whether you can get a credit card, loan or mortgage, but it also affects bank accounts, mobile phone contracts and monthly insurance premiums. This is why it’s important for everyone to be aware of their credit score and the changes that can be made to improve it.
You can try to improve your credit score by taking the measures we’ve listed above, starting with checking your credit report yourself. If you spot any errors on your credit file, you should report them to the credit reference agency straight away. They will then have 28 days to correct the error or explain why they believe it to be true. During this time, lenders will have to disregard the alleged error when assessing your credit score.
If you are struggling to pay your debts, it’s important that you deal with any financial difficulties early by either contacting your lender to see whether they can make alternative payment arrangements or seeking help from a third-party organisation like the Citizens Advice Bureau or National Debtline.