Poor credit score?

Learn how to improve it with this handy guide.

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Last updated: 24/07/2020 | Estimated Reading Time: 5 minutes

How to Improve Your Credit Score

A good credit score is essential for being able to borrow money and secure insurance and other financial products such as credit cards. This guide will take you through the basic details of your credit score, how it is calculated, and how you can find out what your score is for free. Even if it’s looking on the low side, there are plenty of manageable steps you can take to improve and maintain your score to maximise your chances of securing any financial product.

In This Guide:

What is a Credit Score?

Your credit score is a number used by lenders to work out how risky it is to lend to you. It is normally used to decide whether a borrower should be lent to, and if so, how much and at what interest rate. A credit score is calculated from your credit report, and it will be different depending on the lender you are applying to. Your credit report will include general information such as your name and address, but it will also include specific financial information, such as:

  • Other credit applications
  • Late or missed payments
  • How much debt you have
  • Any financial associations, such as joint bank accounts or loans
  • Whether you have filed for bankruptcy
  • Any County Court Judgments that have not been paid as required

Before applying for a loan, it can be useful to check your credit score. This can help you to make sure all the information is accurate, up-to-date and that there is no fraudulent activity. The three main UK-based credit scoring agencies are Experian, TransUnion and Equifax. You can access your score online for free. When you check your score with these companies, it cannot be seen by other lenders, and so it will not adversely affect your credit score.

How you can Improve your Credit Score

  • Register to vote – Registering on the electoral roll confirms your current address. Without this confirmation it can be difficult to secure credit. This can be done easily online.
  • Avoid excessive use of credit – If a lender can see that you are already borrowing a large amount from a number of lenders, they are less likely to approve any applications. Additionally, any applications you make will be visible to other lenders and can negatively affect your credit score.
  • Manage your payments – If you have any recurring payments on loans, paying them on time and in full is one of the best ways to demonstrate that you are a reliable borrower.
  • Check your credit history – As mentioned above, it is a great idea to regularly check your credit report for false or out-of-date information. Mistakes could negatively affect your credit score in future applications.
  • Build up a credit history – Having a limited credit history makes it hard for lenders to assess how reliable you are. You can build up a credit history by making payments on time and staying within credit limits. You can also take out a special kind of credit card known as a ‘credit builder’, designed for higher-risk borrowers to help them build a credit history.
  • End outdated financial links – If you have any financial links, such as joint accounts or loans, lenders will often check the other person’s credit score as well as yours. If this is someone you are no longer associated with, such as an ex-partner, you should end the link so that it doesn’t impact your application.

You should bear in mind that it can take up to three months for the information to reach scoring agencies or lenders, so don’t expect overnight improvements.

Why Should You Improve Your Credit Score?

The lower your credit score is, the harder it can be to secure loans, insurance, or phone contracts. Whilst each company and rating agency will calculate your score differently, there are consistent benefits of a higher credit score:

  • Access to a wider variety of products – A higher credit score means you are a more reliable borrower that companies are more likely to lend to. You are therefore more likely to have applications approved for credit cards, loans, and mortgages just to name a few.
  • Access to more credit – Companies are more likely to trust you with higher credit limits when you have a higher credit score.
  • Access to more affordable interest rates – Improving your credit score makes you a lower-risk borrower, and so companies will charge you less interest on any loan you secure.

What Can You Do To Maintain A Good Credit Score?

Once you’ve taken steps to improve your credit score, the next challenge is maintaining it. There are a range of key things to bear in mind to keep your credit score high.

Close any unused accounts, for example credit cards you no longer use. Having these open will make lenders think you won’t be able to manage extra credit. You should also make sure you avoid allowing your accounts to become delinquent or defaulted. This happens when you miss payments, and both will drag your credit score down.

You should carefully think through any applications that you make for credit to judge whether you really need them. Each one will be visible to future lenders and can reduce your chances of being accepted. Try and make fewer than 4 or 5 applications a year. When applying, you should also think carefully about how much you can afford to borrow. If you successfully borrow too much and then miss payments, this will severely damage your credit score, especially if you end up in the County Court.