How to improve your credit score
A credit score can affect your ability to borrow your money, access credit cards or loans, and even take out a phone contract. Checking your credit score is free and if it isn’t in the best shape, there are things you can do to improve it ✔️.
What is a credit score?
A credit score is pulled from a report known as your credit file. The most recent information on your file will have the most impact, as lenders are only really interested in your current financial situation. Your credit file pulls information from the last 6 years so everything good and bad will be visible to lenders.
The information shown on your credit file might be used to decide whether to lend to you, how much you will be able to borrow, and how much interest to charge you.
If your credit report shows missed payments, it might mean you’ll be charged higher interest by lenders. It might also make you eligible for some loans. This is because lenders will view you as a higher risk.
Regularly checking your report can highlight areas in which you can improve your score and it can also help you spot any fraudulent activities.
How to check your credit score?
The three main credit scoring agencies in the UK are Equifax, Experian, and TransUnion.
The easiest and quickest way to get your credit score is online, which is free. You can also get a full credit file for free with the only difference being that the latter will get sent to your address via post ✉️.
Credit score membership
A subscription membership with one of the main credit agencies allows you to gain more up-to-date information on your credit history. Some subscription memberships might also give you access to agents who can look into your file.
However, remember to cancel your free trial if you don’t want to go the whole hog and pay the monthly subscription.
What information will I see in a credit report?
Each credit rating agency will hold slightly different information, but on the whole, you’ll be able to find:
- Name, address, and date of birth
- Credit applications
- Financial links to other people, for example, a joint loan or bank account
- Any late or missed payments or defaults
- How much money you owe to lenders
- Any Country Court Judgements (CCJs) against you that are not paid in full within one month of receiving the notice
- If you have been declared bankrupt or entered an IVA (Individual involuntary agreement)
A credit rating won’t include:
- Your salary
- Student loans
- Medical history
- Criminal record
- Council tax arrears
- Parking or driving fines
However, this information might be requested when applying for a loan or contract.
What is a good credit score?
Different lenders will have their standard for rating credit scores. If you have a good score with one of the main reporting agencies, it’s more than likely you’ll have a good credit score with your lender.
A good credit score with TransUnion is scoring 4 out 5, Equifax is scoring over 420 out of 700, and Experian is scoring over 880 out of 999.
But remember, your credit score doesn’t guarantee that you’ll be approved for credit or offered the lowest interest rates. This is because the lender’s decision is not made solely on score.
How long will it take to improve my credit score?
Credit history is built up over time as you increase the number of on-time payments you make. Keeping an eye on your credit score helps you spot issues early and the longer the bill goes unpaid the greater the impact on your credit score.
Most negative marks on your credit score file will stay there for at least 6 years. After that time, everything is deleted.
How can I improve my credit rating and credit score?
If you’re feeling daunted about the prospect of improving your credit score don’t worry there’s plenty of things you can do to improve it.
- Register on the electoral roll
You can register to vote online or by post, if your names not on the register you’ll find it much harder to get credit.
- Check for mistakes on your file
Even the smallest mistake like the wrong postcode can affect your credit score. So checking regularly and thoroughly that all the information is correct will prevent you from being penalised.
- Pay your bills on time
You see this advice time and time again, but paying your bills on time will help improve your credit score. Missed payments may hurt your efforts to improve it. Find out more about the best way to pay bills here.
- Fraudulent activity
There are some sneaky people out there, and you could get people applying for credit in your name without your knowledge. If you spot any fraudulent activity on your credit report, contact the credit reference agency immediately.
- High levels of existing debt
Eliminating any existing or outstanding debt is essential before you apply for new credit. This is important because banks, building societies, and credit card companies might be wary about lending to you if you already have a lot of debt.
- Keep your credit utilisation low
Credit utilisation means how much of your available credit limit you use. For example, if you have a credit limit of £1,000 and you’ve used £500 of that, your credit utilisation is 50%. If possible try and keep your utilisation levels to 25% as lenders like to see a low utilisation level.
Credit-building card 💳
A credit building card is a great option for people who have a poor credit history. The credit limits on these cards are often low and the interest rates high. By using one of these credit cards on top of paying your bills monthly you can prove you’re creditworthy. When your credit rating improves you can then apply for other cards and loans.
However, on these cards, the interest rates are much higher so it’s important to pay off the balance each month in full.
Avoid expensive credit repair companies ❌
Some companies advertise that they can repair and improve your credit rating on your behalf. But don’t be fooled! Most of them are just obtaining your credit file and advising how to improve your score – which you can do yourself!
How to report and fix any mistakes on your file 📁
If you do spot any mistakes on your credit file the first thing you should do is report them to a credit reference agency.
They have 28 days to review the information. During the 28 days, the mistake will be marked as a dispute and lenders aren’t allowed to rely on it when assessing your credit.
Finally, if there’s information on your file that’s accurate but doesn’t reflect your current situation you can add a notice of correction to your credit report.
Recovering from credit fraud
If you’ve been a victim of identity fraud or credit fraud, your credit score may have taken a hit. To improve your credit score you might have to take some of the previous steps mentioned again.
When you check your file, keep an eye out for a Cifas marker called a Victim of Impersonation notice. This serves as a notice for future lenders that you’ve been a victim of fraud.
This marker will stay on your profile for 13 months. Having a Cifas doesn’t affect your credit score and doesn’t stop you from taking out credit. It may, however, cause you some issues if you are applying for credit that is usually done automatically, like store finance. Because your file would need to be reviewed and checked manually.