It’s no secret that a high credit score is a sign of good financial health. That’s because individuals with high credit scores are more likely to get credit—whether it’s a mortgage, credit card, vehicle loan, or more—and often at the best rates.
If your credit score is low, you may have reasons to worry. Keep reading as we give you some practical tips to help improve your credit score.
What are the Reasons for Improving My Credit Score?
Although different lenders calculate credit scores in various ways, most will evaluate your credit report before deciding to lend you money. In the United Kingdom, there are three main credit reference agencies: Equifax, TransUnion, and Experian. Lenders typically check your credit score with one or more of these agencies.
Improving your credit score is important because a higher score is often seen as a lower risk by lenders. It suggests better credit management and financial responsibility.
By improving your score, you can benefit in the following ways:
- You’re more likely to get approval for loans, mortgages, and credit cards faster.
- You’re likely to secure lower interest rates, making borrowing cheaper.
- If you spread the cost of car insurance across the year, a good credit score can help you get a better rate.
- A higher credit score can lead to larger loan amounts.
A common concern is how long it takes to improve your credit score. This depends on several factors, and improvements typically don’t happen overnight. You may need to wait several weeks or months to see noticeable changes.
Ways to Improve Your Credit Score
- Register Your Current Address
It’s a good idea to register your current address on the electoral roll, even if you’re not living in your own home—whether it’s shared accommodation or living with your parents. Updating your address helps lenders verify your information when assessing your creditworthiness.
- Build a credit history
Credit card companies and lenders assess your credit history when deciding to offer loans, mortgages, or credit cards. Having no history makes it difficult for them to evaluate you. This is why younger individuals or those new to the UK often struggle to secure credit. It’s essential to build a solid credit history.
- Make timely & Regular Payments
Paying on time each month is one of the best ways to prove to lenders that you’re a reliable borrower. Consistent, timely payments show that you can manage your credit responsibly, which helps improve your credit score.
- Ensure Low Credit Utilisation
It is the percentage (%) of your credit limit that you use. Credit utilisation plays a significant role in your score. For example, if your limit is £1,000 and you’ve used £500, that’s 50% utilisation. Lenders prefer lower utilisation, ideally under 30%, as it suggests responsible use of credit.
- Showcase Responsible Financial Behaviours
Responsible financial behaviours, like paying bills on time (Council Tax, utilities, etc.) or saving regularly, can boost your credit score. These actions are recorded & shared with lenders, reflecting positively on your creditworthiness.
- Monitor Your Credit File
Your credit file may be vulnerable to fraudsters who could use your personal details to apply for credit in your name. That’s why it’s essential to regularly monitor your credit report and file. If you spot anything suspicious or inaccurate, inform the relevant authorities immediately.
- Avoid Moving Homes Regularly
It is especially important for renters in the UK. If you change homes too often, lenders might get concerned about your stability—perhaps they’ll wonder if you can afford your rent. Keeping your living situation steady can project financial stability and help improve your credit score.
- Showcase long credit history and multiple accounts
By keeping old accounts open and using multiple credit accounts, you demonstrate to lenders that you can manage your credit responsibly. Credit scoring models often reward mature credit accounts, particularly long-standing ones. But remember: to gain these benefits, use only a small percentage of your credit limit.
- Get a Credit Builder Card
In the UK, a credit builder card can help strengthen your credit score. These cards generally have higher interest rates & lower spending limits. While your score might dip initially, using the card wisely will improve your credit score over time.
A word of caution: Only use credit builder cards for small purchases like essentials to avoid debt.
- Avoid Multiple Credit Applications
Applying for credit frequently within a short time frame may signal over-reliance on credit, which could negatively impact your score. Space out your credit applications, ideally every few months, to avoid harming your credit report.
- Stay Away from Defaulted Accounts
Defaulted accounts are a red flag to lenders, signalling missed payments or issues with your credit history. These can significantly hurt your credit score and take years to clear from your report.
- Minimize Debt
Avoid accumulating debt beyond what you can afford to repay. Debt-related issues, such as bankruptcy or County Court Judgments (CCJs), can severely damage your credit score and remain on your report for up to six years.
- Proof of Residency
If you can’t register on the electoral roll due to ineligibility to vote, you can ask credit reference agencies to mention a note in your file. This note will inform lenders that you hold Proof of Residency, and they may request additional documentation from you.
- Be Cautious with Joint Financial Products
If you have joint accounts or loans, ensure that your partner’s credit history is in good standing. A poor credit score from one partner can negatively impact the other’s credit rating. If your partner moves out, remember to formally unlink your finances.
- Update Addresses in Old Accounts
Always update your address with old accounts to avoid issues during credit checks. If your old address is still linked to your credit history, it could lead to delays or rejections of credit applications.
- Review Your Credit File After Rejections
Rejection can sometimes result from errors, not your credit score. If you’re rejected, check your credit file for inaccuracies. Repeated rejections due to errors can hurt your credit score.
- Avoid Cash Withdrawals on Credit Cards
Withdrawing cash from your credit card is costly—it signals poor money management to lenders and comes with high interest rates. This can have a detrimental effect on your credit score.
- Make Timely Rent Payments
The timing of your rent payments affects your credit score. Tenants can benefit from free schemes to improve their credit scores, but these schemes take time to show results, typically about six weeks after enrolling.
- Wait for the Right Time to Apply for Credit
If you have old financial issues (e.g., bankruptcy or CCJs) on your file, it’s best to wait until they lapse before applying for new credit. These issues can remain on your report for up to six years, and applying too soon may lead to rejections.
- Avoid Payday Loans
Payday loans have a tendency to negatively affect your credit score and are seen by lenders as a sign of poor financial management. In addition, they often come with high fees and interest rates.
- Skip Credit Repair Companies
Beware of credit repair companies claiming they can improve your credit score. Many of these services operate illegally, and even legitimate ones can’t guarantee any significant improvements.
- Maintain Consistent Personal Details
Lenders prefer consistency in your personal details, such as your address and employment status. If you’re applying for credit, ensure your personal information matches across all applications, even if they’re spread out over time.
- Cancel Unused Credit Cards
Closing old or unused credit cards can help prevent fraud and make your credit history more manageable. However, keep your card with the highest limit open, as it can improve your score by showing lenders that you can manage large amounts of credit responsibly.
Improve Your Credit Score with Professional Accountants at Cangaf Ltd.
Improving your credit score takes time & consistent effort, but smart financial habits can make a big difference. We’ve outlined popular ways to boost your credit score. If you need further assistance, don’t hesitate to contact our expert accounting professionals at Cangaf Ltd.
Links
MoneyHelper: Offers comprehensive advice on understanding and improving your credit score, including tips on managing credit accounts and correcting errors on your credit report.
GOV.UK: Discusses the impact of County Court Judgments (CCJs) on your credit rating and how to manage them to maintain or improve your credit score.
