What is a credit score?
Your credit score is a number that summarises your credit history. Your credit score is calculated based on a range of data relating to your credit history, and the information in your credit history is used by lenders to determine how responsible you are as a borrower.
Although different lenders will use their own formula to determine your credit score and may judge the same details on your credit record in various ways, there are several steps that you can take to improve your credit score across the board.
Why improve your credit score?
Improving your credit score is important if you want to apply for credit in the future, whether you are looking for a credit card, loan or mortgage. Although lenders use their own calculations to decide whether to offer you credit, your credit score indicates your creditworthiness.
You can use your credit score as a guide to determine how likely you are to be approved for credit, so it is important to ensure your credit history is up to date and accurate. Having a high credit score can give you access to cheaper credit deals and save you thousands of pounds over time.
Steps to improve your credit score
Improving your credit scores can take time. Depending on your current score and what your credit history contains, it can take anywhere between one month and several years to see changes in your credit score. However, there are some steps you can take to start improving your scores right away.
Get on the electoral roll
Registering to vote is a simple way to improve your credit score. That’s because when you sign up to your local Electoral Registration Office, two things happen:
● You will become a registered voter for your address
● There is an official record you live at your address
This improves your credit score, as lenders can easily identify where you live by accessing the electoral roll. Keep in mind that being on the electoral roll doesn’t mean that you have to vote.
You also need to make sure the addresses your credit providers use are the same as the one you are registered to vote with - so if you’ve got any bills still going to your parents’ address or accounts registered at an old property, get in touch with the provider and have it updated to your current one.
Use a credit card
It may seem counterintuitive to use credit to improve your credit score. However, using credit - and repaying on time – allows you to demonstrate your ability to manage and repay the credit to any lender.
Using a credit card can help improve your credit score, but do remember to pay off your balance in full after purchasing via your credit card.
This helps build your credit score as it proves you can get into and out of debt, showing you are reliable when repaying what you owe. As long as you repay the credit card balance in full each month, you can boost your
However, you should avoid withdrawing cash from a credit card, as this will leave a mark on your credit record and cost you interest.
You can compare credit cards here
Never miss a repayment
Paying any credit back on time is key if you want to improve your credit score. If you miss a repayment on a credit card, loan or mortgage, it will get recorded on your credit history.
This will harm your credit score, so make sure you have enough money to pay your credit bill each month to avoid this happening.
For credit card payments, consider setting up a direct debit that takes at least the minimum amount each month to avoid ever missing a repayment. Where possible, try to pay the full balance of your credit card each month.
Check for credit record mistakes
Your credit score may be affected if information about your financial history is incorrect on your credit record, or if there is missing information.
Look for anything that isn't true, such as a wrong address or a missed payment that you had paid on time. If you notice any mistakes or omissions on your credit report, you can contact the credit reference agency in question and ask for your file to be updated.
Check your credit record before you apply for any credit accounts to improve your chances of getting accepted.
Here is more information on credit records
Avoid payday loans
If you need to borrow money quickly, do not consider a payday loan unless you have no other options.
A payday loan application shows up on your credit record, and your credit score can get negatively affected even if you get accepted for the loan and repay in full and on time.
This is because payday loans indicate that you need money fast, and are unable to get a cheaper alternative way of borrowing.
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Avoid going past your overdraft limit
Most current accounts let you go into a negative balance, also called an overdraft. The type of overdraft you use can affect your credit score:
Authorised overdraft: This is an agreed amount you can go into a negative balance. There could be charges for using this but using it should not negatively affect your credit unless you are always in it.
Unauthorised overdraft: This is when you go into a negative balance without your bank agreeing to it first, or past your arranged limit. You will get charged daily, and this will appear on your credit record.
Contact your bank and ask for an overdraft extension if you think you'll need it, rather than going into an unauthorised overdraft. Using an unauthorised overdraft can hurt your credit score.
Avoid making multiple applications for credit in a short space of time
Your credit record will show every credit application you make and any potential lender will be able to see these applications. If you get declined, try to avoid making a new credit application for at least six months.
When you make multiple credit applications in a short space of time, you will appear desperate for credit, which will affect your credit score negatively.
Before making a credit application, look for an eligibility checker to give you an indication of whether you're likely to get accepted.
Here is what else to consider when making multiple credit applications
How to check your credit score
You can check your credit history for free by contacting a credit reference agency to request a report.
You can also view your credit files online through either free or paid services that allow you to check your credit score regularly.
