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Top 10 Tips on How to Improve Your Credit Score

A good credit score is vital to having a successful future. This is because it gives you more negotiating power, a better chance of loan approval, low-interest rates, easier approval for apartments and much more. On the contrary, bad credit makes your life costly. And stressful because you are given a small credit limit, charged higher rates and sometimes, your loan request is rejected. The good news is that bad credit does not last forever and there are things that you can do to improve your credit score.

What is a Credit Score?

A credit score is a 3-digit number that evaluates your creditworthiness and summarises your borrowing history. Lenders such as credit unions and banks use credit scores to determine the risk involved by lending money to a borrower and minimise losses caused by bad debt. Lenders use credit scores to find out who is eligible for a loan, the credit limit of a borrower and the interest rates to charge a person.

Additionally, organisations such as government departments, mobile phone companies, landlords, and insurance companies use the credit score to calculate a borrower’s creditworthiness. Companies will also check the credit rating of a customer before doing business with them, especially when products or services are given in advance.

What is a Credit Report?

Your credit report is a full report of your financial standing. It has your personal information, including your address and all previous addresses, all your credit accounts (open or closed), all repayment histories for utilities, etc and even financial connections (e.g. joint accounts).

What is a Good Credit Score in the U.K.?

Most Americans have a credit score ranging between 300 and 850 because most lenders in the US use only one credit scoring system to assign credit scores. However, in the United Kingdom, a lender cannot find out your likelihood of paying your debt with the use of a single credit score. Therefore, lenders use your credit file information held by credit reference agencies such as TransUnion, Experian, and Equifax to calculate your credit score. So what is good for credit score in the UK?

According to Equifax,

0 - 279 is very poor

280 - 379 is poor

380 - 419 is fair

420 - 465 is good

466 - 700 is excellent

According to TransUnion,

0 - 550 is very poor

551 - 565 is poor

566 - 603 is fair

604 - 627 is good

628 - 710 is excellent

According to Experian,

0 - 560 is very poor

561 - 720 is poor

721 - 880 is fair

881 - 960 is good

961 - 999 is excellent

With these credit scores what is good is that you can download free apps for each. These apps usually let you access your full credit report, too. As you can see these credit agencies differ in their credit scoring, it is recommended to be aware of all three. However, it is unlikely that one will give you a 'good' credit score, while another giving you 'fair'. Your number points may be better or worse, but generally, you will fall into the same category with all three.

How to Check Your Credit Score

In the UK, credit score checks are provided for free. To do a quick credit score check, begin with your credit card issuer or bank. Various financial institutions offer free credit scores to their customers and all you are required to do is to check the app or log in online to find out your scores. If your credit card provider or bank offers free credit score checks, you do not have to find a new service unless you need a credit rating check for your company or any other type of service that they do not provide. However, with free apps available in the app store, you might find it more convenient to just download one so whenever you want to know your credit score or check on your credit report it's one tap away.

How to Improve Your Credit Score

If you have a low credit score, you can use the following ways to improve your credit score:

1. Get Registered on The Electoral Roll

Credit reference agencies and prospective lenders need to find out who you are and where you live. The reason as to why being registered on the electoral roll improves your credit rating is because lenders can confirm that you have provided accurate information. The interested parties can also confirm your identity and avoid problems associated with identity theft or fraud.

2. Make Timely Payments on Your Bills

Paying your bills and credit cards on time and ensuring that your balances remain low are the most important factors of building your credit. Your payment history is one of the crucial factors making up your credit score. For this reason, late or missed payments can remain in your credit report for up to 6 years. Besides, lenders look at your payment history to find out if you are a responsible borrower or not.

3. Keep Your Credit Utilization Ratio Low

The credit utilization ratio is the outstanding credit card balance that you have on your credit limit. It is the amount available on your credit limit. To elaborate, if you have a credit limit of £5000 and use £2500, your credit utilization will be 50%. Lenders prefer those with a ratio of less than 30% because it shows that the borrower knows how to manage their credit. You may think applying for multiple credit cards can therefore improve your score, because they will increase the available credit, and push your credit utilization ratio lower. However, unused credit cards are not a plus point in the eye of lenders, and, credit applications - whether they are loans or credit cards - especially in a short amount of time, leave a "stain" on your credit report. Don't try to trick the system. Make sure you only have as many credit cards as you need and use.

4. Get A Credit Building Card

You can apply for credit building credit card if you have a poor credit history. The card will have a low credit limit and a high-interest rate. This is because creditors still see you as a high-risk borrower. However, by using the credit building credit card to pay off your monthly payments, you can prove that you are creditworthy, improve your credit score and apply for other types of loans and cards after improving your credit rating.

Remember that making repayments on time is what will help you to improve your score. When choosing a credit repair company, it is recommended that you select one that is not overly pricey. Also, watch out for those who promise quick results because some of those firms are scammers. These methods take time and consistency. Don't expect wonders after 2 months.

5. Check Your Credit Report and Report Any Errors

One late payment can have a devastating impact on your credit score. So, make sure that your report is correct. If you find any errors, you should report it to the agency so that they can raise a dispute for you. Do you have a missed payment by error? Are there credit applications on your report that you didn't make? Get the phone, and call immediately. These fixes can improve your score greatly and quickly!

6.Disassociate All Your Financial Associations from Your Ex-Partner

A shared credit account means your credit report information is linked. This happens in joint credit accounts or joint finances. If you make credit applications such as a loan or mortgage with your spouse, you will automatically be financially associated with them.

Your financial associates will affect your loan eligibility. This is because lending companies may check your partner’s credit history before approving your loan. The creditors will assume that if, for instance, your partner has been made bankrupt, you will need to help in repaying their debts before you can make a payment on yours.

7. Build Your Credit History

It is difficult for companies to assess you if you have little or no credit. Young people or those who have relocated into a new country may have no credit history, thus having a low credit score. You can build up your credit history by taking a credit card and making on-time payments each month. You may think that not needed credit at all, and as such, not having a credit card shows you are actually financially stable, and when it comes to the point where you want to get a house and get a mortgage for it, you will be all set. Wrong! Get a credit card soon, and let the time tick away and build your credit score up.

8. Don’t withdraw cash on your credit card(s) 

(Except if it’s a specialist credit card for spending abroad)

Withdrawing cash on credit cards is expensive because you are charged interest even if you repay in full on time. But most importantly, it damages your credit score, because banks and lenders consider it as poor money management.

9. Spend small amounts often on your credit card

If you are able to, get a credit card with the sole purpose of spending small amounts and paying it back in full each month. Not just the minimum required payment. Unused credit cards show on credit reports as an available credit. But it’s often seen as a negative thing by lenders. If you spend little and regularly, and pay it back on time each month, it will improve your credit score. It shows lenders you are responsible. Be sure to pay more than the minimum required, to show you have enough to spare. It boosts your credit rating and also saves you money on interest. 

10. Never miss a payment 

Last and certainly not least...never miss a payment! You may already know this but when you miss a payment it can affect your score dramatically. Missing payments can sometimes stay on your credit file for a few years so do your best not to miss any. We would recommend paying all your debts and bills by direct debit each month, this way you will never be late or miss a payment. If you find you are struggling to make the repayments, please contact your lender immediately to seek help - before a late payment happens. It's likely that you can arrange for some solution with your lender - for instance, reduce your monthly repayments, or get a repayment-holiday for a few months - and you can avoid the damage.

Now that you know all the different ways you can raise your credit score, let's see how fast you can achieve results.

How fast can you raise your credit score?

When time is of the essence - say you are planning to get a mortgage soon - you may feel the pressure to improve your credit score fast. Out of these recommended measures, there are a few that can give your score a quick raise, while others take time. How fast you can raise your score really depends on what is your starting point.

If you are already registered on the electoral roll, have a credit card since a while (with responsible use), and have no disadvantageous credit ties, improving your score may be a bit more time-consuming process. If on top of these three things, you're also doing well with your credit utilization (good credit. card usage) and staying on top of your bills, then the measures suggested will help you avoid damages, but will not give your score an instant boost. However, you might not be in need of it, as it sounds you're doing just fine!

Of course, if you are struggling to make timely payments on your bills and have been using your credit card wrong, then making sure to fix these issues will improve your credit score month by month. Get yourself a budgeting app, and get your finances in order. If you are in a situation. where all of our tips need to be actioned, then implementing them will. definitely give your score an instant boost, but. you need to stay on track for months and years to come to climb all the way up to good and excellent.