Improving your credit score (and more importantly, credit health)
There are lots of myths around how you can actually improve your score.
Your credit score could indicate how likely lenders are to lend you money, whether they give you higher or lower limits 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.
However your score isn’t the be all end all – lenders make their own decisions, with your score being just one factor among many. View your score as an indication of your wider credit health. Improving your score, in that case, also helps you build healthy credit habits. So here are some of the things which could help:
1) Understand that there are multiple scores
You don’t have just one credit score; different credit reference agencies (e.g. Experian, TransUnion, Equifax) may provide varying scores. Keep in mind that a good score is just one aspect of a lender's decision-making process.
2) Register to vote
It might sound odd, but getting yourself on the electoral roll could 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 to 10 minutes.
3) Build your credit history
Having little or no credit history can affect your credit score. Lenders see your history as an indication of how you’ve dealt with money in the past (and whether they should therefore lend to you).
Things like putting bills in your name, or acquiring a basic form of credit like a mobile phone contract can help. Credit-builder cards can also be a good way to establish credit when used responsibly. Monzo currently offers Flex Build as an option for those who want to get started with using credit.
A Monzo current account is required to apply for Flex. Eligibility criteria and Ts&Cs apply. UK residents & 18+ years olds only. Missed payments may negatively impact credit scores. To open Flex Build, you may need to put down a one-time security deposit depending on your credit history. 39% APR representative (variable).
4) Space out credit applications
When it comes to applying for credit, it’s tempting to make lots of credit applications so you can try to get at least one. But making several applications in a short space of time could dent your score. It can signal to lenders that you may be overly reliant on credit. Instead, try to apply for one product at a time (waiting several months in between) and use eligibility calculators provided by lenders to assess your likelihood of acceptance without impacting your score.
5) 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 a 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, so it’s definitely something to avoid if you can.
6) 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, if you’ve been using more than half of your available credit with a lender, try to bring your usage down to around 25%. You’ll usually gain points if you use around 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.
7) Avoid things which could be seen as ‘bad habits’
Things like withdrawing cash with credit cards can shine a negative light on your money management due to the high fees associated with it - try to avoid this and use a debit card instead if you need cash.
8) Check for mistakes on your report
Check for things like address errors. An old, unused but technically active mobile phone contract registered to your old address could potentially cause a rejection from a lender.
How long does it take to improve your credit score?
Improving your credit score depends on which steps you’ve taken to try and give it a bump. The most important thing to remember is that it won’t happen immediately!
Even information like opening a new bank account or successfully applying for a credit card can take up to 90 days to be added to your credit report. It’s also worth noting that often, when taking out credit, you could see a temporary dip in your score, but after a few months you should see it improve.
It’s best to view your credit score as a process where you’re always acting in a responsible way, to make it healthier over time.
You can monitor your credit score & report using Monzo
Track your TransUnion credit score and free credit report with Monzo and get a sense of the factors impacting your credit health and the steps you can take to improve it.
If you want a bit more visibility on how your credit health is tracking, our Extra, Perks or Max plans allow you to view all three scores (TransUnion, Experian and Equifax) and learn about more ways to improve your credit health.