I know, ‘how to improve your credit score’ sounds either really scammy or incredibly dull. True as dull as it may be, it is simply one of those personal finance housekeeping jobs that is actually incredibly important. It can even mean the difference between a ‘yes’ or a ‘no’ on a mortgage application for your dream house.
If you have a poor credit score, you’ll end up paying a higher rate of interest for mortgages, loans and credit cards. If your score is really poor you might not even get accepted. The good news is that whilst improving your score takes time; the process is straight forward if you follow the steps laid out below.
But let’s get one thing straight off the bat: a credit ‘score’ is simply a way for a lender to assess the level of profit vs the risk you represent to them. It is not something they do out the goodness of their heart. To them, you are just a number. You represent profit potential and the more debt they can sell you for the least risk, the higher your score. It’s a game. Yet it’s one of those games you simply have to play if you want things like mortgages. So, let’s savvy up and learn how to win at the game.
Credit Score vs Credit Report – know the difference
While most people talk about a credit score, it’s actually your credit report that you should care about.
Fundamentally, your credit report is a list of all the companies you have taken credit from over the last seven years. This includes loans, credit cards, hire purchase, store credit and mortgages to name a few. Your report shows if you have made the payments on money you have borrowed. Furthermore, it also shows if you have missed payments.
In addition, it contains your personal information such as full name, address and date of birth. Your credit report is a simple fact and there is no opinion or ‘scoring’ involved.
Credit Scoring, however, is where three specific companies give your their your score, based on the contents of that credit report. That score will differ between the credit scoring companies as they all assess this profit vs risk conundrum in different ways.
Ultimately, you can’t influence their scoring mechanisms. But you can influence the information they use – the credit report. For this reason, your credit report is what really matters. Even small errors such as a typo in your address can cause significant issues so it is really important to make sure it is accurate.
In the UK, there are three main credit scoring agencies:
Experian – the largest and most commonly used
Equifax – the second largest
TransUnion – the newest agency not used quite as much
How do I find my free Credit Reports?
You can find out your credit report easily and for free. Importantly, they don’t show up as a search so you can check as often as you like…..and you should, regularly.
We recommend using both of the services below because between them they include data for all three agencies:
Experian is the largest and most widely used credit scoring company in the UK. You can sign up to see your report for free. Experian, of course, wants you to pay the monthly fee to monitor your score. While I’m sure some would find value in this, such as monthly reports and email alerts, we have another free idea for you.
If you sign up to Experian using TopCashback you can currently get £4 in cashback from the free report.
ClearScore is a website and mobile app that monitors your credit score. We like ClearScore as it gives you your full report meaning you don’t have to pay Experian for it. Best of all, the report you get from ClearScore is the same credit report data that Experian uses. No monthly fee and you get to keep all the benefits, your welcome! Additionally, ClearScore also offers insights on what you need to do to improve your score.
What is a good Credit Score?
Below is a good example of a free (perfect) credit score report from Experian. You will also see the Experian gradings below to give you an idea of what it takes to move up towards the green end of the scale. You should be aiming for a score in the 900’s if you want to get the best deals and have the highest chances of being accepted for credit.
Example Experian Credit Score
Excellent 961 – 999
You should get the best credit cards, loans and mortgages (but there are no guarantees).
Good 881 – 960
You should get most credit cards, loans and mortgages but the very best deals may reject you.
Fair 721 – 880
You might get OK interest rates but your credit limits may not be very high.
Poor 561 – 720
You might be accepted for credit cards, loans and mortgages but they may have higher interest rates.
Very Poor 0 – 560
You’re more likely to be rejected for credit cards, loans and mortgages
Experian Credit Scores
How is my Credit Score worked out?
According to Experian, the areas listed below affect your credit score. How the score is calculated is Experian’s secret sauce and they don’t plan on telling the general public the formula.
How much debt you have – some debt is ok, just not too much. You need to be able to prove you can pay your debt back.
The average age of your credit accounts – lots of young credit accounts are not good. Also, a long financial history shows you are stable.
Applications you’ve made – lots of applications in a short space of time may indicate someone who is in financial difficulty, therefore reducing your score.
Whether you’ve made payments on time – missed payments are a red flag and show you can’t pay your debts. This is bad.
How much credit you have available – high limits on credit cards are good as they show trust, but you ideally want to be using less than 20-30%.
Whether your on the electoral roll – proof of where you currently live and have lived in the past is checked this way. Address details must be accurate.
Defaults, bankruptcy, IVA’s or CCJ’s – these are section marks on your credit score and show you may have had problems in the past.
If you have debt, are not making payments on time and are applying for more credit, lenders see you as a higher risk and so you’ll end up with a lower score. Those who don’t borrow too much, keep making their payments and don’t need to frequently borrow are seen as a lower risk and therefore rewarded with a higher score.
Improve your Credit Score in 7 simple steps
1. Get on the Electoral Roll
Registering on the Electoral Roll (or Electoral Register) helps to prove where you live. If a company is going to lend you money, they need to know they can find you. Each time you move you must ensure you update the Electoral Role. It’s also essential if you want to … you know … vote in local and national elections too. Being able to prove your housing history lowers your risk. You can get on the Electoral Role here.
2. Check your Credit Report
Use Experian (the free version) and ClearScore as detailed above to make sure the details are accurate. It’s useful to check this before any large applications like Mortgages and Loans. If it flags up a problem or error then set about fixing it by contacting the lender. Regularly review your report and payment history. Open your digital calendar and set a repeating reminder for the first week of January every year.
3. Never miss a payment
Missed or late payments are a big red flag to lenders. They show you might not have the income to pay back your debts. Lenders will treat those with missed payments as a higher risk and won’t give you the best rates. Already missed a payment? Fear not, read our section below for help.
4. Use a ‘credit building’ credit card
Specific cards, like the Aqua Card, are designed to help you build a better credit history. They should help improve your credit score. In return for this service, Aqua will sting you with a shocking 37.9% APR. So if you to take this card, make sure you limit your spending each month to no more than £50. Never use it to withdraw cash and always pay the balance in full each month. Not doing these things will make your credit score actually worse, so please don’t get caught out.
5. Minimise the amount of available credit you use
Minimising the available credit you use sounds obvious, but credit agencies look at the utilisation of your credit. This is the amount you could spend (say a £10,000 limit on a credit card) vs how much you have spent (ie only having a £500 balance). A lower utilisation is better for your score. Try and keep under 20-30% for best results.
6. Use consistent details
When applying for credit, make sure you use the same format for your name and address. Credit scoring agencies use these details to match you to the loans you have and having inconsistent details can negatively impact your score. Check your report with ClearScore to ensure there are no errors.
7. Avoid ‘payday lenders’
Some payday lenders will claim they can improve your score. Some mortgage lenders, though, see payday loans as a huge red flag and may reject your application. Stick to the credit building credit cards if you have to go down this route.
Seven simple steps to max out your credit score.
Be careful of linking your finances
Taking out a financial product with another person effectively links your credit records. This could be a mortgage, loan or even a joint bank account. If your financial partner has a poor credit report, it can impact yours and lower your score. Think carefully before taking out joint products. You may want to focus on building the person with the poorest score up, before linking your finances. It is also really important to have these conversations with your significant other, difficult as it may feel. Openness and transparency is best in the long run.
You can check if your score is linked to anyone else by using ClearScore. To check on the mobile app, go to the Report section and scroll to the bottom of the page. Click ‘Personal Details’ and look at the section that says ‘Connections’ and other names. If someone else is listed here then you are financially linked.
If your relationship ends or you no longer require a joint financial product, you should ensure your records are no longer linked. You can separate your credit scores by filling in a notice of disassociation form. This will stop anything your ex-partner does from impacting your score and limiting your potential of getting the best rates in future. Here is Experian’s Disassociation form.
What if I have missed a payment?
Missing a payment to a lender can have a big impact on your score. It’s a flag that shows potential lenders that you cannot always make your payments. If this was an error then you need to contact the lender and get them to update your records to correct the mistake.
This does happen every now and again and it will take a bit of leg work to sort out, but it will be worth it. If you are in this position then pick up the phone and get it sorted out swiftly. Monitor your report on a regular basis so that any errors or even fraud can be dealt with quickly. The impact some negative factors have on your score can reduce over time.
If your missed payment is not an error, then work out why it happened. Do you have reminders in place to make sure you pay your credit cards and loans? Have you put them on direct debit to ensure this doesn’t happen again? Make sure you set aside money each month to pay these debts, failing to do so will result in you making things even worse for yourself. Our free budgeting guide will help you put a system in place to pay all the bills first and ensure you don’t miss any important payments.
How long does it take to improve your credit score?
Unfortunately, there is no quick fix for making your credit score better. Each person’s credit score is individual to them and worse scores can take longer to repair. Following the steps above and monitoring your credit score are the first steps to follow.
It takes seven years for late and missed payments to clear from your record. Usually one won’t have a huge effect and over time the impact lessens. However, if you have multiple missed payments, these are showing the credit agencies a trend of poor money management and so these will take longer to clear.
Collections and Charge-Offs (where a debt has been written off by the lender due to lack of payment) have a more serious impact on your score and can take much longer to recover from.
A bankruptcy stays on your credit report for ten years and probably has the biggest impact. If you are facing bankruptcy, make sure you get help and advice before going down this route.
Fundamentally, over time, no matter how poor your score was, it can always be improved. Your main goal is to show lenders you are good, or better, with money and you can pay back your debts. It’s as simple as that, plus patience and consistency.
So, if you want a financial product, then you need to prove you are good with money. Pay everything back, on time and according to the original agreement. Don’t fight the system. Keep your nose clean and you’ll be rewarded with better deals on loans, mortgages, overdrafts and of course, you’ll get a shiny green score from your new friends at Equifax. Follow the steps above and you’ll be fine.
Here’s to financial fitness.
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EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. Investments may go up as well as down and you may get back less than you put in.
I've spent years investing, saving and budgeting in order to build a better financial future for myself and my family. I bought and renovated my first home only to break even when I sold it. I've house hacked, been an accidental landlord and even considered living on a boat! All of this has led me to Eat Sleep Money, a site where I can share some of the tough lessons I’ve learnt over the years so you don't make the same mistakes.