How to Improve Your Credit Score
If you have a poor credit score, you may struggle to get a mortgage, credit card or loan. Fortunately, there are a few ways to build up a good credit rating.
Your credit score can make a huge difference to your finances, as it affects your ability to borrow money. If you have a poor credit score, you may struggle to get a mortgage, credit card or loan. It also means you could be charged more interest when you borrow than someone with a better credit score.
The good news is there are lots of simple things you can do to improve your credit score.
How to check your credit score
Before you start working to improve your credit score, you need to know what it is. There are three credit reference agencies in the UK: Equifax, Experian and TransUnion. Each of them compiles your credit history and creates a credit score for you.
You can access your credit report for free from any of the credit reference agencies.
» MORE: How to check your credit score
What is a good credit score?
Since all three credit reference agencies use a different system, your credit score isn’t the same across the board. This is what each credit reference agency defines as a ‘good’ score under their system:
- Experian: A score of 880 or more out of 999
- Equifax: A score of 420 or more out of 700
- TransUnion: A score of 604 or more out of 710.
Quick ways to improve your credit score
Improving your credit score is all about making yourself more attractive to lenders. They want to lend money to people who are reliable and have a record of paying back their debts.
Here are four quick and easy ways to show lenders you are reliable and improve your credit score:
- Register to vote. Lenders use the electoral register to check your address is correct.
- Check for mistakes. Make sure the information on your credit report is accurate, and contact the credit reference agencies to get any errors corrected.
- Set up direct debits. Late or missed payments can have a significant impact on your credit score. Set up direct debits so your bills are paid on time automatically.
- Stop applying for credit. When you apply for credit it shows up on your credit report. Applying frequently in a small window of time can hurt your credit score.
How to correct errors on your credit report
Tell the credit reference agency if you find a mistake on your credit report. They then have 28 days to address the dispute and confirm their next action.
At the same time, contact the company related to the mistaken information. It may be able to resolve the problem for you.
You can also add a ‘notice of correction’ to details in your report. This can be useful if there is something bad on your report, but you have an explanation for why it happened. For example, you may have fallen behind on some payments because you lost your job, but you are now back in work. You can add up to 200 words explaining what happened, which lenders will be able to see when they assess your application.
Long-term steps to improve your credit score
The main thing a lender wants to see when they look at your credit report is that you have handled debt responsibly in the past. That means using credit sensibly and repaying your debts on time.
The long-term way to improve your credit score is to borrow responsibly. Here’s how:
- Use credit. If you’ve never borrowed before you will have a low credit score as there is no evidence you are a reliable borrower. Apply for a credit card and use it sensibly to build your credit history.
- Keep your balance low. Lenders assess your credit utilisation when looking at your credit report. This is how much of your available credit that you are using. (If you have a £1,000 credit limit and a balance of £500, your credit utilisation is 50%.) Getting close to your credit limit can be a red flag to lenders, as it could mean you are struggling with your finances.
- Pay your bills on time. Late or missed payments will damage your credit score, so ensure you make all your repayments on time. The simplest way to do this is by setting up direct debits from your current account for your bills.
How long does it take to improve your credit score?
It typically takes around three months for companies to send information to the credit reference agencies. So you need to wait at least that long to see your credit rating improve.
Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more