As the cost of living crisis deepens, a good credit report is becoming more and more important. Not only does it affect your chances of getting a mortgage, loan or credit card, but it also determines your eligibility for bank accounts, car insurance and even, mobile phone contracts.
Looking for tips on how to improve your credit score? Our helpful guide tells you everything you need to know.
What is a credit rating and credit score?
A credit rating (or credit score) is a system that determines how likely an individual or business will be given credit by a lender. Its aim is to try and predict how likely you are to repay your loans.
Different lenders have their own methods of judging whether to offer you credit or not. But as a general rule, if you can demonstrate a consistent history of responsible borrowing, regularly pay your debts off on time and keep your records up to date, your credit rating will likely be good. The higher your credit rating, the better your chances of being accepted for credit at the best rates.
How to improve your credit score
There are many credit reference agencies that allow you to check your credit score. These include the likes of Experian, Equifax and TransUnion. If your credit rating needs improving, try the following steps…
1. Sign up to the electoral register
Keeping your details up to date on the electoral register is super-important. Whether you’re living alone or in shared accommodation, always inform the electoral roll whenever you move as this is how lenders verify your identity. If you’re not eligible to vote in the UK and so are unable to be on the electoral roll, ask all three credit reference agencies (listed above) to add a ‘notice of correction’ to your credit file so that you can provide alternative proof of residency to lenders. This could be via a utility bill or your UK driving licence.
2. Avoid moving house regularly if possible
If you can avoid moving house on a regular basis, do so. Frequently switching between different residences can raise alarm bells to lenders. They may think you’re having trouble paying rent or other issues, for example. If you stay in one property for a long period of time, then lenders will see stability in your circumstances.
3. Build your credit history
You may think that not having a credit card will improve your credit score. But actually, not having any credit at all makes it very challenging for lenders to assess your creditworthiness. The less credit you have, the lower your credit score will be. If you’re new to the country and have no credit history, building it up doesn’t take long. Ways to build your credit history include opening up a bank account, taking out a small form of credit (a mobile phone contract, for example), managing your household bills well and getting a credit card and making regular payments on time.
4. Keep your credit utilisation low
If you have a credit card, it’s a good idea not to max out your limit completely. Doing so could raise alarm bells to lenders. If possible, try to keep your credit utilisation lower than 30%. For example, if your credit card limit is £5,000, try not to use more than £1,500. This will send a positive signal to lenders and may help to increase your credit score.
5. Keep your old accounts open
When you take out a credit card with interest-free periods, it can be tempting to do a balance transfer and immediately close your account. But actually, demonstrating that you’re able to successfully manage multiple credit accounts over a long period of time can do wonders for your credit score. If you have a long-held credit card account and you’re only accessing a small portion of your credit limit, you will likely be rewarded.
6. Monitor your credit file and report any mistakes
Small errors such as a mistyped address can hinder your creditworthiness and cause lenders to refuse credit. That’s why it’s a good idea to regularly check your credit report to ensure all the information is accurate. If there are mistakes, contact the provider directly and request changes. Monitoring your credit file also makes it easier to spot fraudulent activity. If a fraudster takes credit out in your name and you spot an application you don’t recognise on your credit report, you should report it straight away. Experian has a helpful guide explaining what to do if you’ve been a victim of identity fraud.
7. Utilise Experian Boost
When you sign up for an Experian account, you can choose to link your current account. Experian Boost then analyses your responsible financial behaviour. It looks at information such as mortgages, mobile phone contracts, regular household bills and credit cards and shares the data with participating creditors (subject to your consent). If you’re making regular payments and you’re not spending more than you earn, your credit score could get an instant boost.