8 Aug 2018

How to improve your credit score

Illustration of a book

Your credit score (or ‘rating’) reflects your chances of getting approved for credit − the higher it is, the better. It can also affect how much you’re allowed to borrow and at what interest rate.

So, looking after your score could help you get a good deal on your next loan, credit card, mortgage or overdraft.

Register to vote

It might sound odd, but getting yourself on the electoral roll will add points to your credit rating. It helps lenders confirm your identity and address when you apply for credit. This means they’re more likely to approve you, which will help improve your score.

If you live in the UK, you can register to vote online in just 5-10 minutes.

Build your credit history

It’s not just a poor credit history that can lower your score. Having little or no credit history is also a common problem, especially for young adults and new immigrants.

Your credit history shows companies how you’ve managed money in the past. This helps them decide whether to lend to you. If there’s not enough information, they may refuse to give you credit or might not offer you the best deal.

Luckily, there are a few ways to build a credit history. For example, you could open a bank account, put household bills in your name, or get a basic form of credit like a mobile phone contract. This may cause a temporary dip in your score, but after a few months you should see it improve.

Just make sure you pay particular attention to the following points when building your credit history.

Space out your credit applications

When it comes to applying for credit, it’s tempting to hedge your bets. But making several applications in a short space of time could put a serious dent in your score.

Too many applications could make lenders think you’re desperate for credit, and therefore more of a risk. That means you’re less likely to have your application accepted, which will in turn make your score go down.

So, the best approach is to apply for one product at a time. Use an online eligibility checker to see which credit deals you’re more likely to get. And if you do need to make another application, try and wait several months.

Make payments on time

Paying your bills on time and in full will improve your score in the long-term. It shows lenders that you’re a responsible borrower, so they may start trusting you with higher limits and lower rates.

On the flip side, late or missed payments can damage your score. After several missed payments your lender may decide to close or ‘default’ your account. This will be recorded on your credit report for six years, whether or not you pay off the debt eventually. It can make your rating drop like a stone, so it’s definitely something to avoid if you can.

Minimise your credit use

Maxing out your credit card or overdraft doesn’t look too good to lenders, so your score may fall if you do. On the other hand, you’ll usually gain points if you use no more than 25% of your agreed credit limit. For example, if you have a bank overdraft of £1,000, try to only use £250 of it at a time.

Ultimately, improving your credit score is about showing lenders you’re a reliable customer, who’ll use credit responsibly and pay them back.

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