Having a good credit score can allow you to access better credit limits and interest rates. If you have a low credit rating, the good news is that there are several ways to improve your credit score. From closing unused credit card accounts to registering to vote – here is our advice for boosting your credit score.
If you have a bad credit score, you may find it difficult to access good rates and limits for credit such as a personal loan or mortgage. Don’t worry – there are a few ways to improve your credit score. Remember that your score will not change immediately. Credit Reference Agencies (CRAs) will often update your score around every 30 days , so every step in a positive direction counts.
The best ways to improve your credit score
1. Register to vote
If you register on the electoral roll, it will be easier for CRAs to verify your address. It’s one of the easiest and fastest ways to improve your credit score. You can register to vote at shared accommodation or if you are living at a family member’s address.
2. Pay off existing debt
You may find it difficult to be accepted for further credit if you have existing debt from a previous loan. Lenders are more likely to offer credit and better rates to those who have paid off all previous debt. Making regular repayments or fully paying off a loan will also improve credit history.
3. Avoid using the maximum credit allowance of credit cards
If you reach the maximum credit limit on one or more credit cards, this will reflect poorly on your creditworthiness. By staying away from the upper limits of your credit, lenders will see you as more financially responsible. Credit utilisation means the amount of a credit card maximum you use. For example, your credit utilisation would be 50% if you have a £3,000 credit card limit, but only use £1,500. Aim to keep credit utilisation as low as possible.
4. Keep old accounts open
CRAs view old, or mature accounts as a positive thing. This is because old accounts demonstrate that you can handle a credit account for a long time. If you have a bank account or credit card that you have had for a long time and can prove stable financial behaviour, your credit score will be positively impacted.
5. Having too many unused credit cards
On the other hand, having too many unused credit card accounts could be viewed negatively by lenders. If you have too much unused credit, lenders may assume that you are financially unstable and could use up all the unused credit in one go. Have too many unused credit cards you won’t use? Take one of the crucial steps to improve your credit rating and close these accounts.
6. Don’t apply for credit too often
Consistently applying for credit might be an indication that you are struggling financially. If applying for a loan, a “hard credit check” will be done. This means lenders will request and access your full credit report. If your application for credit is unsuccessful following a hard check, it will lower your credit score further.
7. Closely monitor your joint accounts
By having a joint account with someone, your financial data is linked. This means that the financial history of the other person also affects your credit score. Close a joint account if it’s no longer necessary. Having a joint account with someone you are no longer in contact with means you will remain to be financially linked until this is closed.
8. Check your credit file for errors
As Credit Rating Agencies (CRAs) handle a lot of financial information, there could be an error on your credit file. If you suspect there is an error, get in touch with one of the three CRAs:
If you notice inaccuracies such as a late bill payment that isn’t correct, get in touch with the lender or billing company to remove it. You will need evidence to support your correction.
9. Try not to change address if possible
While it might be difficult to avoid moving home, remember that lenders like to see that your circumstances are stable. By moving home a lot, lenders could assume that you have had trouble with making rent or mortgage payments.
10. Making regular credit repayments
If you have a credit card or an ongoing personal loan, making repayments on time is a good sign to lenders. This shows that your financial circumstances are stable and that you are reliable. If you have no credit cards or have never had a loan, it might be beneficial to have a low-limit credit card. If you make regular repayments on this credit card, it can improve your credit score.
What’s the different between credit scores and credit ratings?
Although the terms credit rating and credit score are used interchangeably, they have slightly different meanings. A credit score is typically used when referring to an individual’s creditworthiness. Whereas a credit rating is often the term used when rating the creditworthiness of a business.
If you take action to improve the credit history of your personal financial situation or business accounts, then you should see the score or rating improve over time.
Why you should improve your credit rating
Your credit score is used by lenders to determine your creditworthiness. Which means how financially reliable you are viewed. A poor credit score will mean you will not be able to access better deals for credit and likely encounter higher interest rates.
Having a higher credit score also means you can access higher credit limits. Applications for credit are also more likely to be successful if you have a higher credit score. High credit scores are not just useful for better rates for loans, but also useful when mortgaging or remortgaging a house. To get the best interest rates for a mortgage, it’s recommended to take steps to improve your credit rating in advance of looking for the credit. Doing this will allow your credit score to update, as this can take from 30 days to a few months.
Four steps to improve your credit rating
There is no set checklist for improving your credit rating, as there are many factors which can affect it. However, consider the below steps as well as the tips given above to ensure you have taken all measures to improve your credit score.
1. Check you are on the electoral roll
If you have recently moved or never registered to vote at your current address, take five minutes to complete registration online. You can check if you are registered to vote by contacting your local registration office. Registering to vote is the simplest way to improve your credit rating.
2. Repay any outstanding debt
Having outstanding debt will make it more difficult to be accepted for further credit. Your credit score will also improve by making regular repayments as it shows that you are financially stable. Set yourself monthly reminders for credit card or loan repayments to keep your finances on track.
3. Assess and close unused credit cards
Take a look at what credit card accounts you have open. If you have unused credit cards, consider closing the account. Lenders might deem you as risky if you have high access to credit that you haven’t used. Remember that you will need to finish making any repayments on credit cards before the account can be closed.
4. Check your credit report
Get in touch with one of the three major CRAs – TransUnion, Equifax or Experian. You will have to apply to be sent your full credit report. It’s usually a quick process to apply. Carefully check the report once you have received it. If you notice an error with a falsely flagged debt repayment, speak with the lender. You will need to provide evidence to support your claim. If your dispute is successful, the lender will remove the false record. This should have a positive impact on your credit score.
Can I improve my credit history?
Yes, the terms credit score and credit rating are often used interchangeably. If you take the right steps to keep on top of your credit, your credit history will improve along with your credit score. This means making regular credit repayments, not maxing out credit cards and reducing the amount of applications for credit where possible.
For more tips and advice on managing your finances, browse our helpful articles in the Know How section today.