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How to Improve Your Credit Score

Your credit score is one of the most important measures of your financial health. We explore what it is, why you should improve it, and how to get started.

 

What is your credit score?

Your credit score is created from the information held in your credit account (credit file).

Credit reference agencies compile information about your financial history, known as a credit report, and use it to generate a three-digit score.

Your credit score reflects the way you’ve handled your debts and bills in the past. So if you’ve borrowed money in the past and always kept up with repayments, this will have had a positive impact on your score. But a history of missing or making late payments would have had a negative impact.

If you’ve never borrowed money before, it’s difficult for lenders to assess the risk of lending to you and your credit score will reflect that.

 

Why is it important?

It indicates how reliable you are at borrowing and repaying money.

Lenders use your credit score to help them decide:

  • Whether to lend to you
  • How much to let you borrow
  • How much interest to charge you

A good credit score is needed for a mortgage, personal loans, credit cards, insurance, mobile phone contracts, recruitment etc. So ensuring you have a good credit score can open many doors for you and mean you end up paying less interest.

Here’s information on how to check your credit report

Most negative marks will remain on your file for at least six years. After that, everything is deleted from your file. This includes missed payments, defaults, bankruptcy and CCJs.

However, there are steps you can take to begin improving your credit score.

 

How to improve it?

Generally speaking, credit history is built up slowly over time with as you increase the number of on-time payments you make.

If you have a low credit rating, The Money Advice Service recommend the following steps to start working on it:

  • Register on the electoral roll

If your name’s not on there, you’ll find it much harder to get credit. Go to the GOV.UK website to find out how register to vote online or by post.

  • Check for mistakes on your file

Even having just a slightly wrong address can affect your score. So make sure you check all the details and report any incorrect information straight away.

  • Pay your bills on time

Paying a phone landline or internet contract on time is a great way to prove to lenders that you can manage your finances.

  • Check if you’re linked to another person

Having a spouse, friend or family member’s credit rating linked to yours through a joint account could affect your personal rating if they have a poor score.

  • Check for fraudulent activity

If something on your credit report is wrong or doesn’t apply to you, contact the credit reference agency to have your file updated. For example, if someone applied for credit in your name without your knowledge.

  • County Court Judgements (CCJs)

Receiving any county court judgements for debt will seriously affect your credit score. If you’re having problems keeping up with payments, find free debt advice online

  • High levels of existing debt

Ideally, you should pay off any outstanding debt before applying for new credit. This is because banks, building societies and credit card companies might be hesitant about lending you more if you already have a lot of debt.

  • Moving home a lot

Lenders feel more comfortable if they see that you’ve lived at one address for a considerable period.

  • Keep your credit utilisation low

Your credit utilisation is how much of your available credit limit you use. For example, if you have a credit limit of £2,000 and you’ve used £1,000 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 increase your credit score. If possible, try to keep your credit utilisation at 25% or lower.

 

Need help getting started?

Our CreditBuilder was designed to support you and help with improving your credit score through small responsible lending. Get in touch with us at enquiries@capitalcreditunion.com to find out more.

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