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How to Improve your Credit Score

Friday 28th Apr, 2023

Here's some tips...

TIPS ON IMPROVING YOUR CREDIT SCORE

Improving your credit score will open the door to better interest rates, higher credit limits and a wider choice of deals from lenders.

If your credit score isn’t so good, don’t despair, as there are a number of actions you could take to boost it, and give yourself a more secure financial future.

What is a credit score? 

Lenders generally use a credit score, or credit rating, to check whether you are a suitable candidate to borrow money.  Your score is based on your past financial behaviour and helps to assess the risk of lending to you now and into the future. The higher your credit score, the better.

When you apply for a mortgage, personal loan or credit card, lenders make a credit check with one of the UK’s three major credit reference agencies – Experian, Equifax or TransUnion. 

Each credit reference agency assesses different data in its own way, so your score will differ across the three agencies. Therefore, there isn’t one official score for every individual. Your lender’s decision whether to give you credit depends on which credit reference agency they use to run credit score checks and generate credit reports.

If you have a history of bad credit, this will affect your credit score. Equally, if there’s not much data to assess (perhaps because you haven’t taken out financial products before), this has a negative impact on your credit rating, too.

Here’s some handy tips on improving your credit score:

 

Use a credit card responsibly 

This is a sensible way to build an excellent credit history.  Aim to pay the balance in full every month for the maximum benefit to your finances.  And don’t use your credit card to withdraw cash, as this suggests that you’re unable to manage your money well.

Try to keep your credit card balance low throughout the month, for instance by only using it when you haven’t sufficient funds in your bank account. Low usage of your available credit card limit shows you’re sensible and measured, which reflects well on your credit rating.

Credit scores take into account what percentage of your available balance you use, so aim to keep it below 25%. So, if your credit limit is £1,000, your balance should not exceed £250.

 

Register to vote 

Registering to vote at your current address will benefit your credit score.

You should always register on the electoral roll at your address, even if you live in a shared house, or with your parents.

 

Have your name on household bills 

Check that your name appears on the household bills at your address.

If that isn’t possible, set up an account in your name, like a phone contract or credit card, to enhance your credit score.

 

Don't default on payments 

Paying your bills on time every month is the best way to keep a healthy credit score. Set up Direct debits or reminders if you haven’t already, as they help you stay on track with payments.

If you know you’re going to struggle to make a payment, don’t let it bounce. Seek immediate advice to learn about your options. You may be able to pay later, arrange an emergency overdraft or extend an existing overdraft temporarily to cover it.

Alternatively, apply for a loan with manageable repayment options. If you apply to HEY Credit Union, we’ll give you a speedy decision and only lend responsibly, to prevent our members falling into financial hardship.

In any event, it’s important not to default on payments, as this will damage your credit score.

 

Close down old accounts 

Carry out your own financial review and close down any old, unused bank accounts, store credit accounts and credit cards. As long as they remain open, credit reference agencies include these into your credit score, so it makes sense to de-clutter and have a fresh start.

 

Don't apply for credit too often 

Each time you apply for credit it can leave a footprint on your credit file for a year, so be sparing with your applications to keep your credit score healthy.

If your applications are rejected, resist the temptation to keep on applying and instead look for ways to improve your credit score, so you’re in a better position when you next apply for credit.

 

Don't be affected by someone else's bad credit 

If you have a joint account with a partner who sends it into an unarranged overdraft, or your flatmate pays a bill late in your name, this will affect your credit score.

Every financial transaction connected with your name impacts your rating, so make sure you don’t pay the price for someone else’s recklessness.

If you’re concerned that someone may not be financially dependable, keep your account separate and look after your own finances.

When you move out of a house share or end a relationship, close any joint accounts, loans or mortgages to cut all financial ties.

 

Pay your insurance bills annually if possible 

Another way to improve your credit score is to pay for home and car insurance annually, if you can.

When you request to pay for insurance in monthly instalments, the insurance provider usually runs a “hard search”, which will show up on your credit score.  Where comparison sites run “soft searches”, these don’t affect your rating and only you can see them.

However, insurers often add substantial interest onto your policy when you pay monthly, so if you can budget to pay in one lump sum, it will save you some money.

 

Check your credit file regularly 

It’s a good idea to keep a close eye on your credit file from time to time to make sure there are no mistakes or you haven’t missed any payments without realising it.  It will also help you to spot if you have been a victim of identity fraud. 

You can run a check as often as you like and it won’t affect your credit score.  Visit the MoneyHelper website to find out how to do this for free:  How to check your credit report.

If you do find errors on your report, you can contest and rectify them, to improve your credit score.

 

Don’t use expensive credit repair firms

You may see adverts from firms that claim to repair your credit rating. Most of them simply advise you on how to obtain your credit file and improve your credit rating – but you don’t need to pay for that, you can do it yourself.

Some might claim that they can do things that legally they can’t, or even encourage you to lie to the credit reference agencies.  Don’t even consider using these firms.

 

This article is for general information only and does not constitute financial, legal, or any other form of advice.

JES

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