Your credit score is a number that summarises your credit history. It will help you understand how your past borrowing looks to lenders you apply to now and in the future. Your credit score is a good indication of how likely you are to be approved by a lender.
It can help you work out what kinds of credit products you can apply for and access. Improving your credit score is the best place to start if you want to get a better deal on the credit products – like loans or credit cards – that you are currently using or want to use in the future. The better your credit score is, the more lenders will be prepared to accept an application from you, and the better deals and choice you will have.
Here, we’ve looked at how to improve your credit score rating so that if you need to borrow in the future, you’re ready.
No matter what state your score is in – whether you’re recovering from bad credit, building your credit history from scratch as a new borrower or just looking to improve – it won’t shoot up overnight. It takes time, patience and persistence to build up your credit score but follow these steps and you’ll be on your way to a better rating in no time.
1. Ensure your credit utilisation isn’t too high
The less of your available credit you are using the better. When you borrow money, particularly on a credit card, you’ll be given a limit. This is the most amount you can owe on that card at any given time. You can find your credit utilisation by dividing your balance by your limit. For example, if you have a £500 balance on a card with a £1000 limit, your credit utilisation will be 50%.
However, credit utilisation is measured across all your open credit accounts. This means that the calculation can get a little more complicated.
To find out what it is, add together all the balances of your open credit accounts, then add up your credit limits for all those accounts. Then divide your total balances by your limits.
So if, you have a credit card with the £500 balance and £1000 limit, and another credit card with a £1500 limit that you’re not using, then your credit utilisation is 20%. This is because, across your open credit accounts, you’re using £500 of £2,500 limit available to you.
Having credit available to you but not using it can boost your credit score. The goal is to show lenders that you living within your means and aren’t dependent on credit. One of the main Credit Reference Agencies, Experian, recommends keeping your credit utilisation at 25% or below.
Using more than this can make lenders consider that you are dependent on credit, which can have an effect on your credit score, and in turn count against you.
2. Try to pay off larger debts first
If you’ve borrowed large amounts of money that you’re currently repaying, focus on paying off the most expensive accounts first. These may be the accounts with the highest balances or the ones with the highest interest rates. Strive to pay these off as quickly as you can.
Free up cash to put towards these debts by cutting back on non-essential expenses. Can you find extra income by having a side business, or by selling unwanted items? Making regular payments above the minimum requirement will help you clear debt steadily. Read our guide on how to pay off a loan faster to help.
3. Enrol on the electoral register
Make it easier for Credit Reference Agencies to verify where you live. They use the electoral roll to confirm your permanent address. If you are not registered on this, it is more difficult for lenders to confirm this.
This alone can be enough for a lender to refuse your application, and not being on the electoral roll can have a negative effect on your credit score. It takes five minutes to register – and of course, even once you’re enrolled, you can still choose whether to vote or not.
4. Pay credit on time and in full
Ensure your regular payments for credit cards and loans are paid on time and in full. Speak to you lender about setting up automated payments in the form of a monthly direct debit or through a Continuous Payment Authority (CPA), if you don’t have one already.
If your payments are taken automatically then you won’t need to remember, or run into any trouble should you be unable to log in and manually make your payments one month. You just need make sure you have enough money in your bank account to cover your payments.
5. Don’t apply for lots of credit at the same time
Numerous searches being recorded on your report will start to have a knock-on effect on your credit score, lowering it by a few points each time. This is because applying for lots of credit suggests to lenders that you may be struggling financially, which can make them less willing to approve your application.
As a general rule, when you apply for credit with a lender, they will search your credit file to make their decision. Lenders can carry out two types of checks when you apply to them: a soft search and a hard search. A soft search (something Sunny offers***) allows a lender to tell you whether you are likely to be approved for credit, before you officially apply, and means if they say no, it won’t show on your credit file or impact your credit score.
A hard search is carried out when you officially submit an application. This is recorded on your credit file and means other lenders you apply to in the future will be able to see the decision. It also means that a negative decision will be noted on the credit file and impact your credit score. If you can, keep the applications to a minimum and seek out lenders who offer a soft search when possible.
6. Take on small amounts of credit to build up your score
Once you’re ready to build a positive credit history, a good tactic to approach borrowing money, is to start small.
Choose a credit card with a small limit, and use it to cover a necessary, essential expense such as petrol or food shopping. Then, pay off the balance in full at the end of each month. This proves that you can borrow and manage your money, and over time, this will lead to a robust repayment history that will increase your credit score.
8. Ensure that your credit report is accurate
Small inaccuracies can have a surprisingly big impact on your credit score. Check that your address and name are correct and spelt properly. Does the amount match what you think you have borrowed? Check it. And, make sure all your payments are showing correctly.
Even a seemingly small typo can show inconsistency and create questions. The aim is to make sure that all the details held about you are correct. When they are considering your application lenders want to be sure the information held on your credit report is reliable and that the accounts are definitely yours and for the right amount. They are looking for accurate information and a reliable picture of how you have managed past borrowing.
As well as honest mistakes, you should also check that there are no fraudulent applications listed on your report in your name. With just a small amount of your personal information, fraudsters can use your details to apply for a loan or credit card that they have no intention of repaying. When they don’t pay back, it’s then your creditworthiness that takes the hit, since the account was in your name. So check the list of lenders carefully.
If you find an account on your credit report that you don’t believe is yours, the first thing to do is to check the name of the lender the account is with on the Financial Conduct Authority (FCA) register. Some lenders are part of larger organisations, and you may find that it’s the name of that larger organisation that’s listed on your credit report.
For example, Sunny is part of a larger organisation called Elevate Credit International. The FCA register will tell you the name of the organisation, and also any other names they are known by.
Check this list for lenders that you know you do use, and then if you still don’t recognise the lender on your credit file, report it as fraud both to them, the Credit Reference Agencies and Action Fraud.
9. Deal with any defaults, CCJs or late payments
If you are, or have been experiencing financial difficulty and have missed payments, defaulted on credit accounts, have previously been declared bankrupt or have outstanding IVAs, Debt Relief Orders or County Court Judgements (CCJs) against you, these will be shown on your credit report and will impact your credit score.
To improve your credit score, you’ll need to work to put these issues right with the accounts they’re linked to. If you are struggling with repayments, then you may find it helpful to speak to a not-for-profit debt advice organisation for free and impartial advice. National Debtline or Citizens Advice are just two such organisations you may want to consider speaking to.
Improving your credit score gives you a better chance of being accepted for credit products in the future. It will also give you more choice. A low credit score means your applications for credit can be refused, and if you are approved, you may only be able to borrow small amounts or will be charged higher interest rates.
Your score can be found on your credit report, which is a document you can access through any of the Credit Reference Agencies (CRAs). There are three main Credit Reference Agencies in the UK: Experian, Equifax and TransUnion. They each have different tools and apps to help you access your credit report and understand your score.
Experian’s is called CreditExpert, Equifax data powers ClearScore, and TransUnion give you access to the information they hold on you through Credit Karma. Each of the CRAs will assign you a credit score based on your credit history and their calculations. Each Credit Reference Agency uses a different scoring system, so you’ll have a different score with each provider. You should find, that if one agency says your score is “good”, the others will say the same, even though their scoring systems are each a little different.
Your credit history, which is summarised by your credit score, features details of what you’ve borrowed, when and how often, and how you’ve managed the repayments. If you’ve ever missed payments, defaulted on an account or taken formal measures to manage your debt such as an Individual Voluntary Arrangement (IVA) or other debt management solution, this is included in your credit report, too.
All of this contributes towards your score. This is why it is so important that when you borrow, it is a decision you’ve considered carefully, and make sure that you can manage the repayments along with your other monthly commitments.
If you miss payments or have had to enter into debt management plans, this will have a negative impact on your score. But if you keep all your accounts and payments up to date and on time, it has a positive impact and gives you a good score.