Your credit score is one of the most important aspects for lenders when deciding whether to accept your credit application. The better your score, the better your chances of being accepted, often at lower rates. Let’s find out how to improve your credit score.
Your credit score is a three-digit number that rates your creditworthiness. The higher the score the better your chance of being accepted for credit, and offered the best rates. Your credit score may be looked at by lenders, utility companies, landlords, mobile phone providers, insurance companies, and even potential employers.
This article will cover 10 simple tips to improve your credit score, so that you are in the best possible position to access affordable credit,
What impacts your credit score?
Many people think that the only thing influencing their credit score is whether they keep up-to-date with their repayments. However, according to Experian there are five main factors that impact your score.
- Payment history – missing payments can significantly lower your score for up to six years.
- Amount owed – if you are close to your credit limit, lenders may think you rely on credit to get by.
- Length of credit history – lenders like to see a good track record of sensible borrowing if possible.
- New or recent credit – opening a new account can temporarily reduce your score. Doing this regularly might not give your score time to rebuild.
- Type of credit – lenders may consider your history of successfully managing different types of credit.
Now you know some of the factors that impact your credit score, let’s find out some of the ways you can improve your score.
1. Check your credit score
The first step to improving your credit score is knowing where you stand. It is very difficult to build your score up if you do not know what it is to begin with. According to our 2023 Financial Resilience Report, 17% of those surveyed had never checked their credit score before.
You can check your score for free at sites like ClearScore, Credit Karma, and Equifax. Read our useful guide on how to check your credit score for more information. Once you are sent your credit report, you will see a three-digit number. This is your credit score. Each credit reference agency will use a slightly different scale, so don’t worry if your score varies on each site. Regardless of the scale of credit score they use, each site will determine your score on a range from ‘poor’ to ‘excellent’. So you can use any of these sites to give yourself a good idea of where you stand.
2. Check for errors on your credit report
When you review your credit report, keep an eye out for any information you do not recognise. This can be someone else’s name and address, or debts that are not yours. Errors like this can be clear signs of fraud. If fraudsters gain access to your personal details, they could take out credit in your name without you knowing.
If you do notice an error, you can contact the credit reference agency and ask for a correction. There may also be non-fradulent errors such as incorrect payment history. Correcting this can improve your score.
3. Prove where you live
Registering on the electoral roll at your current address can be a quick and easy way to improve your credit score. This is because lenders can verify your name and address and be confident that you are who you say you are. You can do this even if you’re in shared accommodation or living at home with your parents.
4. Avoid moving home a lot
Lenders like to see stability in your circumstances. If you are frequently moving home, they may think you are having trouble paying your rent. This isn’t always possible, particularly if you work in the Armed Forces and are frequently deployed to different locations. But if you are able to create some stability it can help your score.
5. Build your credit history
Having little or no credit history can make it difficult for companies to assess your creditworthiness. As a result, this can lower your credit score. This is a common problem for young people, as well as anyone who is new to the country. Luckily, there are some steps below you may be able to take to build up your credit history.
6. Keep old accounts open
Keeping old accounts open can help to show lenders your ability to successfully manage multiple credit accounts, especially over a long period of time. Most credit scoring models tend to reward you for having long-standing, mature credit accounts. It can also help to only use a small portion of your credit limit.
7. Keep credit utilisation low
Your credit limit is the maximum amount a lender will allow you to spend on a line of credit. Your credit utilisation is the percentage of your credit limit you actually use. As a guide, it is best to try and keep your credit utilisation below 30%. By keeping credit utilisation low you are showing lenders that you are not reliant on credit and you are more likely to be able to borrow more if you needed.
8. Avoid hard enquiries
When a propsective lender reviews your credit history in order to make a final decision on a loan application, it’s called a ‘hard enquiry’. These credit checks will lower your score and typically stay on your credit report for up to two years. If you can, avoid hard checks or at least keep them to a minumum. It’s a good idea to educate yourself on how credit checks can impact your score.
9. Pay on time
Keeping up-to-date with your repayments each month is a good way to show lenders you are reliable when borrowing money. It also shows that you are capable of handling credit responsibly.
A way to make paying bills on time easier is to automate your payments. For any credit that has fixed repayments, automating your payments will ensure no payment is ever missed. If you do online banking, you can also set up alerts to let you know when your credit card bill is due.
10. Monitor your credit report regularly
In the same way it is important to check your credit score to begin with, it is a good idea to check your credit score regularly. You will be in a much better position to make further improvements if you know where you stand.
Checking your report will highlight any payments you have missed, so that you can quickly repay and reduce the impact on your score. Even if your credit score isn’t where you want it to be, you’re in a much better position to make a change if you know where you stand.
Improve your credit score today
You should now have a few ideas of how to improve your credit score. The best place to start is to check your credit report for free using one of the sites mentioned in the article above.
For more information on checking your credit score, read our useful guide.