Why would you want to improve your credit score? Well for a lot of people the availability of credit is important. It helps buy homes, buy cars, start businesses, and in lots of cases provide a way to earn money or points whilst spending via credit cards.
I’m not advocating having loads of credit but if you need to apply for credit, improving your credit score is important.
If you’ve ever been declined for credit it can be pretty embarrassing! So these 20 top tips to improve your credit score will not only help you improve your credit score, but also increase your confidence with what to do and when.
What is a good credit score?
Different lenders have their own standards for rating credit scores.
Despite the differences, if you have a good score with one of the main credit score agencies, you’ll more than likely have a decent credit score with a lender.
A good credit score with:
- TransUnion is 781 out of 850
- Equifax is over 420 out of 700
- Experian is over 880 out of 999.
Your credit score doesn’t guarantee that you’ll be approved for credit or offered the lowest interest rates, so it’s worth bearing this in mind.
How do Credit Scores Work?
The interesting thing is that each company calculates your credit score differently. This is based on how much risk they are prepared to accept and how much profit they can make from you!
They will look at your credit history based on their own analysis and give you a score. So the better your credit score, the more likely you are to get accepted and also for some products like unsecured loans, get preferential interest rates and terms.
This is because a credit score is like predicting the future. How likely you are to repay the amount borrowed. A high credit score would indicate you are a ‘safe bet.’
For my full breakdown on how credit scoring works, read this.
1. Look at your score
You have 3 different credit scores: 1 each with Experian, Equifax and Transunion. Each one has its own stats and criteria, resulting in a slightly different score with each one.
Don’t pay for access to your score! To access your;
- Experian score – Martin Lewis Credit Club
- Equifax score – ClearScore
- Transuinion score – Credit Karma
2. Get registered on the voters roll.
Lenders check the electoral roll for evidence of fraud by making sure you live where you say you do.
If you’re not eligible to vote in the UK send the 3 main credit reference agencies (Experian, Equifax and Call Credit) certified copies of your proof of residency and ask them to put a note on your file.
3. Make monthly payments on time
Even if it’s the minimum payment! Paying your internet bill, mobile phone contract, and other contracts on time is a great way to prove to lenders that you can manage your finances.
Missing just one or two payments can impact you for years, and I often hear this from people who simply forgot to pay their card one month! Set up a direct debit for the minimum payment each month JUST to make sure you never miss a payment. Then you can make manual additional payments each month too.
If your payment date falls consistently on a day that doesn’t work for you financially, call your lender or provider and ask them to change your payment date.
4. Pay bills by direct debit
Use direct debits to make sure you pay on time each month. Missed or late payments stay on your credit file for up to 6 years.
If the late payment was beyond your control ( for example the direct debit wasn’t set up on time) as long as the payment is made promptly and you contact the provider, your credit file can be updated.
5. Check who you are ‘financially linked’ with.
If you’ve applied for credit with someone in the past, this will show up on your credit report. If they have poor credit score then it may impact yours.
Contact the credit reference agencies to tell them if you no longer hold the product. When a relationship splits, split up with them financially as well!
6. Stay within your available credit limits.
It may sound obvious but going over your credit limit will show on your credit file and have a negative impact on your credit score.
7. Reduce the amount of debt owed over time
If you have savings, using those to reduce your debt could be a much better use of that money than leaving it sitting in cash.
Too much existing debt hurts your file, so if you have cash available that can be use to pay the debt down, use it.
8. Transfers
Pay off debt if you can rather than transferring it to another provider. 0% transfer deals certainly have their place, and if you’re not in a position to pay off entire balances these can be a great way to save money in the short term. But in terms of your credit score, paying off the debt will always be better.
Ideally, you should pay off any outstanding debt before applying for new credit. Banks and credit card companies might think twice about lending you more if you already have a lot of debt.
9. Check for mistakes on your credit file.
This includes old accounts registered at old addresses. This can cause problems so make sure you change addresses on accounts as quickly as you can and close down any ones you don’t use.
10. Check for fraudulent activity.
Someone who has committed fraud and used your address for example could impact your credit score, even though it wasn’t anything to do with you.
If you’re worried about potential fraud showing on your credit file, you can check on the CIFAS website. It is now free. If you find something the first step is to speak to the company that logged the CIFAS record against you.
11. Don’t apply for lots of credit in a short space of time.
Space out your credit applications as the more applications you make in a short space of time, the more likely you are to get declined.
12. Close down any unused credit, store or debit cards.
Lenders look at the amount of credit you have available as well as how much you owe. Contact the provider and close down the accounts. They’ll want to keep you as a customer so be prepared for this!
13. Build your credit history with a credit card.
If you’ve never had credit, a lender will find it difficult to decide whether to lend to you.
It might be worth applying for a credit building credit card. Making a couple of purchases and paying it off in full each month shows them that you can manage credit responsibly.
Make sure that you don’t forget to pay it off, and don’t get seduced into over spending on the card!
14. Minimise applications by using eligibility calculators.
You only really find out if you’ll get credit when a credit score check is done.
Limiting full credit score checks is important, though. High volumes of searches can impact your score, but you can find out who is most likely to give you credit by using eligibility calculators that don’t leave a footprint on your file.
15. Make sure your rent boosts your credit score
If you pay your rent on time. If so you can sign up to the free rental exchange scheme and by paying your rent through the scheme, this can improve your credit rating. Find out more details at creditladder.co.uk
For lovers of Starling Bank like me, you can now find Credit Ladder in the Starling Marketplace within the app. All you do is create an account with Credit Ladder, tell them a little about your rent (e.g. how much it is , the date you pay it etc) and via the Starling Bank connection Credit Ladder will automatically detect this payment each month and add it to your score.
16. Get your name on household bills
Bills such as energy bills or mobile phone contracts demonstrate your ability to pay bills, so get on them!
The caveat to this is to be aware of financial links if you are living with friends, in shared accommodation, or sharing with other students.
Being named on bills together shouldn’t financially link you, but a joint ‘bills’ account will!
17. Don’t withdraw cash on credit cards
It can indicate poor money habits to lenders, and they don’t look favourably on it.
The interest charged on withdrawing cash from credit cards is much higher too, so this alone is a good enough reason to avoid!
18. After bankruptcy
Add a short statement by post or online explaining why you got into debt (illness/redundancy) Avoid job hopping. (all about habits) Bankruptcy will disappear 7-10 year after.
19. Space out applications
Wait at least 90 days between applications as a minimum, ideally 6 months or more.
20. Soft eligibility searches first
Some lenders will do what’s called a soft search to tell you whether they’ll be likely to lend to you, how much, and at what rate. Sometimes you might see this called an elibility calculator, or soft search. Lenders can’t see these soft searches when they do a full credit check.
Be aware though that when you look at your score, soft searches will appear. Look out for the words “administration check” or “quotation search”: these normally indicate something that lenders don’t get to see.
21. Keep your ‘credit utilisation’ low
This is how much credit you have available to you vs how much of that credit you have used.
For example, if you have a card or account with a limit of £5,000 and you’ve used £2,500 of that, your credit utilisation is 50%, so you’re using half of your credit limit.
Usually, using less of your available credit will be seen positively by lenders, and will push your credit score up. If possible, try to keep your credit utilisation at 25% or lower.
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