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Your credit score is one of the most important numbers in your life. You need your credit score for nearly all financial decisions you make in life – it is a way of communicating to the world about the financial decisions you make and how financially responsible you are.
A credit score is made-up of several data inputs gathered together over time. There are at least 13 ways to improve your credit score, improve your ability to obtain loans, finance purchases and have better financial options.
Credit scores are typically updated to Credit Agencies every 28 days, so any changes to your score won’t show immediately. However, over time, you will hopefully see scores improve.
1. Start building credit early
You should start building your credit history as early as possible, typically from the age of 18. As decent scores take time to obtain, it is best to get in the system as soon as reasonably possible. Some people (for varying reasons) prefer to use cash for most purchases. Whilst there can be good reasons for this, it is a limiting choice that may not help in the long-run.
2. Try to have a few credit agreements in place
Good credit scores often reward having a range of credit agreements in place. This demonstrates you have credit appeal to multiple lenders and you can manage your commitments. Having a handful of credit agreements, say 3-5, is an option to begin with. Experian cover some aspects of this: https://www.experian.com/blogs/ask-experian/how-much-available-credit-should-i-have/
3. Low credit utilisation
Low credit utilisation is all about using less than the full available credit to you. For example, if you have 4 credit cards with £5k limit each, you have £20k total credit. If your total debt is £10k you will have 50% utilisation (£10k / £20k). If your total debt is £5k, you will have 25% utilisation (£5k / £20k). Ideally use a small % of your available credit, for example 25% utilisation
4. Use less than 50% available credit on any one card
No matter how many cards you have, always try to use less than 50% available credit on any one card. If your credit limit on a card is £10k, keep any debt on it to under £5k. Even if your total debt is higher, it is often better to spread the debt across cards, rather than have one large balance and several small ones.
5. Try ensure total credit limit available to you is over £15k
It’s difficult to know how much available credit is ideal. We’ve seen available credit over £15k reported a positive factor influencing credit scores.
6. Ensure you have a good repayment history
It’s important to make all of your payments on time and to have a long history of making payments on time. When applying for credit, lenders looks at your repayment history and favour successful payments. Setting-up direct debit payments can help.
7. Lower existing debt
Overall, lowering your existing debt will have positive impact on your credit file. This is especially debt on unsecured loans, credit cards and, to a lesser extent, mortgages. The less debt you have, the less risky you will appear and the better your debt-to-income ratio is. Another idea is if you have savings and debt, you could consider paying-off some of your debt rather than keeping savings.
8. Minimise credit searches on your file
Credit searches can impact credit scores and reduce them by a few points. To minimise the impact on a credit score, it’s important to minimise the number of searches made in quick succession. Ideally no more than a few searches in a 6 month period. Transunion cover how long searches stay on your file: https://www.transunion.co.uk/consumer/credit-score-faq#searches-on-cred-file-3
9. NEVER miss a payment or pay late – NEVER!
This is a golden rule.
10. Ensure you have a current account open for ages, even if you never use it
Your credit report is a record of your financial life, which includes your current account. A current account that is in good standing and has been opened for a long time indicates your financial responsibility.
11. Check your credit file for mistakes
Mistakes on your credit file can be considered poorly by lenders. Errors can include your name being misspelt or accounts showing as being opened even when they are not. Ideally check your credit report regularly make sure it’s accurate and error-free. If you find any errors, contact the relevant credit agency immediately.
12. Get on the electoral register
You can do this in just a few minutes online or register by post.
13. Get your name on bills
Lenders want proof that you handle bill payments well and household bills are one of the best ways to evidence this. Once you have your name on bills, be sure to keep-up repayments and do not go into arrears.
Conclusion
The 13 ideas here, if applied over time, will help hopefully anyone improve their credit score. We also have a YouTube video covering how to improve your credit score. The process can take some time but it is a key investment in your future.
Good luck!
