How To Improve Your Credit Score

Your credit score can have a huge impact on your financial future. A good credit score can open doors to lower interest on loans, better mortgage rates and better terms on credit cards. And a bad credit score can have the opposite affect.

Keeping check on your score is important, and most suppliers will update your record every month.

How does a credit score work?

Your credit score is a numerical score that’s based upon your credit history. It’s a record of how you’ve managed your finances in the past and any things lenders should look out for such as missed or late payments etc.

There are three major credit bureaus that most lenders use- Equifax^®, TransUnion^® and Experian^®. The scoring systems are slightly different between each one so your score won’t be identical on each, but they should be similar.

Each person has their own score, although if you have a joint account you will be linked to that person. So if they have a really bad credit score it can negatively impact you as well.

How to improve your credit score

When you look at your credit score most suppliers will list some ways you can improve your score. But here is a list of a few things you can do and look into.

Pay your bills on time

This is a pretty obvious one, but if you pay your bills and minimum payments on time then you’ll show that you’re responsible when it comes to credit. This doesn’t just mean credit cards and loans, but also utility bills, phone contracts and other recurring payments.

If you don’t have direct debits set up then go do that now to ensure you never miss a payment.

Try to avoid applying for too much credit

When you apply for credit a hard credit check will be done by the lender to get an in-depth look into your financial records so they can make a decision on whether to lend. These checks leave a visible footprint on your credit history and other lenders can see these.

So if you apply for too much credit, especially in a short space of time this can look unfavourable.

Keep your credit utilisation ratio low

Your credit utilisation ratio is how much credit you have available vs how much you’re using. So if you have a credit limit of £5,000 on a card and are using £4,000 then you’re ratio is 80%.

Aim to keep your utilisation below 30% and pay down any existing date to help improve this ratio.

Manage your credit mix wisely

Having a variety of credit types can benefit your credit score such as loans, credit cards, mortgages etc. But this only works if you manage them responsibly.

Don’t take on unnecessary debt for the sake of it, and only take on credit if you have the means to pay it back.

I have a good mix of credit with a mortgage, personal loan, credit card and individual credit with Apple. And this helps to keep my credit score at a good level.

Register on the electoral roll

If you’re not on the electoral roll at all then make this a priority. Not only does it mean you can vote, but it’s a way of verifying your identity and address.

One of the first things lenders will do when you apply for credit is confirm your address. If you are on the electoral roll and the address you provide doesn’t match then it’s likely you’ll be denied. And just because you updated it doesn’t mean the credit companies will have it updated.

I had an issue when I moved out of my flat back with my parents as I updated my electoral roll, but five months later it still didn’t show on my credit reports. In this time I was denied a bank account and a mobile phone contract and I had no idea why. It took a lot of back and forth between the credit agencies and the council to get this sorted.

Review your credit score for any errors

Errors can occur on your report, and if you flag them then they can be corrected. Common errors might include correct personal information or errors regarding late payments.

If you don’t flag these things then they’ll stay on your account. And some suppliers will only help correct them if flagged within a certain period of time.

Build your credit history

If you have limited or no credit history then you’ll want to build it up. If you have no credit history lenders won’t know whether you’re responsible enough to lend to.

You can take out a credit builder card which has higher interest levels, but if you repay on time it shouldn’t be an issue.

Improving your credit score

By reviewing your score, understanding your situation and following some of the above tips you should get your score into the best position that you can.

In the long run this will massively benefit you when it comes to credit applications.