Building a good credit score is essential to getting the best borrowing rates on the market. But often improvements don’t happen overnight. So below we’ve explained some of the steps you can take towards improving your credit score.
Your credit score affects more than just your borrowing options. When searching for broadband deals, taking out a mobile phone contract, or even insuring your car, providers often wish to learn more about how you handle your finances.
Improving your credit score to a near perfect figure will ultimately take time, but for some there are actions you can take immediately to give your score a boost.
This article explores:
- Why is your credit score important?
- How to improve your credit score quickly
- Good habits that will build your credit score
- Which companies can improve my credit score?
Read more: Your credit score explained
*This article contains affiliate links which may earn us revenue
Why is your credit score important?
Your credit score plays an essential role when lenders decide whether they’ll give you access to any form of credit. This can come in the form of a loan, credit card, or mortgage.
The better your credit score, the greater chance that your lender will give you a preferential rate. When it comes to borrowing large sums of money, preferential rates can save you hundreds of pounds in interest.
This comes in handy during a cost of living crisis and a heightened interest rate environment. These savings on lower interest rates can then free up some of your disposable income for other bills.
Read more: What 6.7% inflation means for you
How to improve your credit score quickly
If your credit score is low, then are some quick steps you can take to give your ratings a boost:
Register on the electoral roll
By signing up to the electoral roll – or electoral register – it’s easier for lenders to verify your information when applying for credit. In particular, it helps lenders confirm your identity, which limits instances of fraud and identity theft.
Some people, however, don’t have a choice in registering. According to the government, if you’re asked to sign up to the register and ignore the request then you could be fined.
When registering, you might wish to sign up for the full electoral register, not the open register. The open register shares your information with other companies, so you might be the recipient of junk mail.
The full electoral register, meanwhile, is edited each month but published once a year. So you can join no matter the time of year.
Take out a credit builder card
Using credit responsibly can be the single biggest contributor towards improving your credit score. But if you have a poor credit rating, then you’ll likely find that you won’t qualify for many credit cards on the market.
Luckily, there are credit builder cards – which are specifically designed for people who wish to repair a poor credit score.
Our guide lists some of best credit cards in this sector, so make sure to read it to start investigating your options. Otherwise if you’re new to the UK, and you don’t have enough credit history to apply yet, then we list some other products you can consider below.
Other types of credit cards include:
- 0% credit cards
- Balance transfer credit cards
- Credit cards for earning rewards
Don’t withdraw cash on your credit card
Whether it be your new credit builder card, or existing plastic in your wallet, refrain from making too many cash withdrawals.
Not only are cash withdrawals on a credit card expensive, but they can damage your credit score. Many lenders consider excessive cash withdrawals from your credit card to be a sign of poor money management and a “cash advance”. These withdrawals are also recorded on your credit file, in much the same way that applying for other forms of borrowing appears in your history. So future lenders will also be able to see these transactions.
Report any errors on your file
Go through your credit report and comb through all your information. If there is an error on your file, this might have a downward effect on your score.
In these instances, write to any company that you believe has mistakenly registered a defaulted payment on your report and ask for it to be removed. If it isn’t, you can escalate the matter to the Financial Ombudsman Service.
Errors such as an incorrect name or address can be removed from your credit report by disputing the matter with the credit reference agency – as long as the address is not associated with any of your accounts.
Close any unused credit cards – but beware the risks!
This step is only beneficial for some people. If you’ve already have access to several different credit and store cards then it could be a good idea to close some of these unused accounts down. This will lower the available credit available to you and show your lender that you are less reliant on borrowing.
However, it is key to stress again that this is only an option for some people. For the vast majority of consumers, it will lower the average age of your credit accounts which will ultimately have a downward effect on your score. So if you’re considering this measure, it is best to leave some of your oldest accounts open as this will illustrate that you can manage your finances over a lengthy period of time.
There are also other effects you’ll need to consider with this decision. Closing a credit card account means you’re utilising a greater percentage of your available credit, which could also see your score drop. Unrelated to credit scores, closing your account does put you at less risk of identity theft.
Good habits that will build your credit score
While the above can boost your ratings, you’ll need to instil some good financial habits to keep your credit score high and improve until it is near-perfect. So below we’ve listed some of these practises:
Pay your bills on time
When we mention bills, we’re referring to more than just your mortgage payments and a personal loan.
To keep your credit score elevated you’ll need to keep up-to-date with all your bills – from mobile phone contracts to council tax. Unlike lending from regulated institutions, these companies don’t have a responsibility to report any paid bills to your credit referencing agencies.
But if you start missing payments, then it can appear on your file. Mounting debt has grave consequences and often leads to a county court judgment (CCJ). This affects your ability to borrow in the future and CCJs remain on your file for six years.
Meanwhile, if you’re renting you can use this monthly outgoing to improve your credit score. Experian runs the Rental Exchange Initiative, a scheme which allows private renters to boost their Experian credit score for free. All you need to do is sign up and report your rental payments to the agency – much like how mortgage payments are recorded on your credit file. More information can be found on their website.
Read more: How to lower the cost of your household bills
Use a credit card little and often
This is one of best ways for you to improve your credit score, as it shows you can manage borrowing on a regular basis.
Having no credit to your name at all gives lenders a blank slate and doesn’t prove that you can manage your finances responsibly. So, consider paying off your bill each month to avoid carrying over a balance and being subjected to high interest rates.
If you have a credit limit of £3,000, for example, and you’ve spent £1,500, your credit use is 50%. As a rule, it’s best to keep this ratio under 30%.
If your credit limit is reduced (because, say, you have been struggling with repayments), a lower limit may increase your credit utilisation rate – so aim to stick to 30% or under.
Pay for insurance upfront
Paying forhome insuranceorcar insurancein monthly instalments rather than upfront can affect your credit score.
Because you are entering into a credit agreement – a type of high-interest loan – the insurer will look at your credit file to check if you can pay them back.
These “hard checks”, visible to other lenders, can bring down your score. Paying monthly insurance premiums is also more expensive.
Update your information
Updating your home address, a salary increase, or your name if it was recently changed can affect your credit score. But there are some updates which carry more weighting than others.
One of these updates is if you’ve split from your partner and your payments are no longer interlinked.
Beinglinked to someone elsefinancially through a joint account, mortgage or loan could affect how lenders view you if they have a poor rating.
If you end financial ties with someone, contact the credit reference agency which can remove them from your own credit report. You can check this in the “financial associations” section.
Don’t apply everywhere
If you’ve been rejected for credit – stop applying!
Too many rejections in a short space of time will bring your credit score down and remain on your file. Future lenders will take this as a sign that you’re desperate for credit and may not lend to you.
Which companies can improve my credit score?
As explained, using credit responsibly (like through a credit card) is the best way to build credit.
But if you’ve just moved to the UK, chances are you don’t have a sufficient credit history to successfully apply for one of these cards. The good news is once you’ve lived in the UK long-enough you’ll have access to credit in no time.
In the interim, you may wish to use other services which will boost your score. These services might also be an option for those who have sufficient credit history but are struggling to obtain one of these cards.
BuildMyCreditScore
Use small, daily purchases to improve your credit score
BuildMyCreditScore looks to improve your credit score through your daily spending.
It does this by issuing a debit card, which is linked to your bank account. You’ll then use this card for small, daily purchases and BuildMyCreditScore will process the transactions a few days later. When this happens, it will take a direct debit from your current account and report these payments to all three credit reference agencies at the end of the month.
It’s like a credit card, but its set-up encourages you to restrain your spending. You can’t carry any debt into the next month, so if you spend beyond your means BuildMyCreditScore will need to report missed payments to all three credit agencies.
BuildMyCreditScore’s services aren’t free, and depending on your plan it charges between £6.25 and £7.95 a month.
CreditLadder
Use your rent to your advantage
As mentioned in this article, you can add your rental payments to your credit file – just like mortgage borrowers.
By using CreditLadder, your rent can be reported to the three main credit referencing agencies and Crediva – another credit reference service. This will cost you £5 a month and bump you onto its Premium Plan, but if you opt to use its services for free your payments will only be reported to one agency.
Loqbox
A way to save and improve your credit score
Loqbox aims to improve your credit score through saving. Each month, Loqbox will take a set figure from your account and keep it away in a fund. You decide how much you’re willing to put aside each month and this usually lasts over a period of one year.
Like a loan, Loqbox will report successful and unsuccessful payments to all three credit referencing agencies each month. So if you keep up with your repayments you’ll eventually see an increased credit rating.
After the 12 month period ends, Loqbox closes your account and you can now access your savings. You won’t earn interest over this period and if you want your money to be paid directly into your account it costs £30. Otherwise, you can access your savings for free if you open an account with one of Loqbox’s partners.
Important information
Some of the products promoted are from our affiliate partners from whom we receive compensation. While we aim to feature some of the best products available, we cannot review every product on the market.
