10 Ways to Improve your Credit Score
Your credit score is based on the information held in your credit report. This score is an important part of your financial picture. Lenders combine your credit score with the information in your credit report to assess your risk as a borrower – super important if you’re planning on applying for a mortgage, credit card or loan! It can also affect your ability to get mobile phone contracts, monthly car insurance, bank accounts and more. The aim of this guide is to help you understand and boost your credit score.
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1. Fix mistakes on your report
Your report contains information such as how much money you’ve borrowed and if you repay bills on time. If your credit report isn’t correct then your credit score won’t be either. If there is a mistake on your report, you will need to dispute the information. If it does turn out to be an error, the relevant credit reference agency has to correct it. Wrong addresses can also have a disproportionate impact so it’s worth checking those too!
You’re legally entitled to a free copy of your annual credit report from each of the three major credit reporting agencies: Equifax, Experian and TransUnion.
2. Get a credit card (and use it sensibly)
Using credit regularly and responsibly will help you build your score. Spending small amounts and paying off your bill each month will show lenders that you can be trusted to pay back any money you borrow. To improve your credit score further, try not to use too much of your available credit (preferably under 30% of your limit), this shows lenders that you can manage your credit sensibly. Avoid withdrawing cash on credit cards too – many lenders see this as evidence of poor money management.
3. Pay off debts
The amount of debt you have is part of the information lenders have access to. Having too much debt that you’re not able to pay off will hurt your file. Use any savings to pay off debts, pay off the most expensive debts first and speak to a debt charity if you feel that your debts are out of control.
4. Get on the electoral roll
Getting on the electoral roll (registering to vote) can help improve the way you’re viewed by lenders. Being on the electoral roll will allow credit reference agencies to verify who you are, making you appear more stable to lenders. You can register for the electoral roll here. Note that you’ll need your national insurance number to hand when registering. If you aren’t eligible to vote in the UK, you can still send Experian, Equifax and Callcredit (the 3 credit reference agencies) proof of your residency. This should help non-Commonwealth and non-EU foreign nationals get credit. Some foreign nationals are allowed to vote in local elections, and therefore can register on the electoral roll in the normal way.
5. Avoid making multiple credit applications in a short space of time
Every time you make an application for credit a mark is left on your credit report. Make too many credit applications in a short space of time and lenders will think that you are desperate for credit. So if you’re rejected for credit, try to resist the temptation to re-apply and use an eligibility checker to make sure you don’t get rejected.
6. Use an eligibility checker
You can avoid getting rejected for credit by using an eligibility checker before you apply. This does not affect your credit score and will show you how likely you are to be accepted for credit before you apply. Don’t apply for products that you’re unlikely to get!
7. Get your name on some bills and pay them on time
Utility bills (including your mobile phone contract, energy bill, etc.) count as a form of credit. However, you won’t get the boost to your credit score if you’re not down as the bill payer (even if you’re contributing to the bills). So it’s worth putting one or two utility bills in your name to help boost your credit score. Paying bills on time will also show lenders that you can be trusted to pay back reliably. To avoid forgetting to pay bills, set up direct debits to pay all your contracted bills on time.
8. Be aware of financially linking to your partner or flatmate
If you are financially linked to someone their files are looked at as part of assessing whether to accept you for credit. There are four products that can cause you to become financially linked – a joint mortgage, a joint loan, a joint bank account, and utility bills (in some cases). Being jointly named on a bill with a flatmate will not mean that you are financially linked. This only happens when the energy firm is confident that you’re a couple (“Mr and Mrs”). Therefore, if your partner/flatmate has a poor history, keep your finances separate! Once your finances are no longer linked, write to the credit reference agencies and ask for a notice of disassociation.
9. Soon paying rent could improve your credit file
The Rental Exchange Initiative allows millions of private renters and social housing tenants improve their credit file just by paying their rent on time. The scheme records your rental payments and adds them to your Experian credit file (improving your credit score).
10. Protect yourself from fraud
Falling victim to identify fraud could damage your credit score, as any credit actions taken in your name will reflect on you. Keep an eye on your credit report so that you can spot financial fraud quickly. If anyone is trying to open credit in your name, you’ll be able to see the early signs in the searches section of your report. Report any fraudulent activity to Action Fraud as soon as you spot it. If you believe that you are vulnerable to identity fraud (e.g. you’ve had your personal information stolen) sign up for the protective registration service from CIFAS. This service means there’ll be extra security checks whenever credit applications are made in your name.
Build your credit score by focusing on using credit sparingly and make payments on time. It takes years to build good credit, but it’s worthwhile to be patient. If you have a bad credit score remember that negative information ages off your report after 7 years.