How to improve your credit score
First things first. If you're reading this, you're doing the right thing. You're considering taking action to improve your credit score. Lots of people bury their head in the sand which can make matters worse. Even if you've been ignoring the problem, the best time to start sorting out your finances is now. It might take a while, depending how bad your credit rating is, but fear not, it’s possible to get back on track, fix credit issues, and improve your credit score.
Let's start with what a credit score is
What is a credit score?
A credit score is a way for lenders to assess how you might deal with credit.
Credit is the ability to borrow money, access services, or access goods with the understanding that you’ll pay for them later. Examples might include your phone contract (where you’re paying off the cost of the handset over time), a loan where you’ve borrowed money, or a mortgage (where you’ve borrowed money specifically to afford a home you couldn’t buy on your own).
Your ability to pay back is assessed and is reflected back to you as a credit score.
Lenders base their assessment on things you’ve done in the past. Those things might include if you’ve had credit before, how much credit you’ve had, how well you stick to paying back the credit, and even how many credit applications you’ve made.
All these things affect how lenders see you. This vision of you is reflected back to you as a credit score. But credit scoring isn't a simple black and white affair.
Your credit score can vary
Lenders have different assessment criteria to see who they will and will not lend credit to. They use different companies to access information about you to see if you fit their credit lending criteria.
That means you could be accepted by one lender for credit but rejected by another. It’s unlikely the rejecting lender will let you know why they can't give you credit because they need to protect against people gaming their eligibility criteria.
There’s no credit score blacklist
In the UK, there’s no such thing as a credit blacklist. It’s a common myth that unnecessarily frightens people into thinking they’ll never get credit again. If you want to improve a poor credit score into an excellent credit score it won't be easy or quick, but it is possible.
How is a credit score used?
A credit score is used to predict your future behaviour with credit. So when you make credit applications for mortgages, phone contracts, and loans (all forms of credit) companies will look at how you’ve dealt with credit in the past to determine how confident they are you’ll be able to sensibly deal with the credit they're offering. Imagine you’ve got £100 and 3 people want to borrow it.
The first person has borrowed £100 from someone else and still owes them £50. They also missed a payment along the way. The second person has never borrowed any money from anyone. The third person has borrowed £100 from someone else and paid it all back on time. In fact, they've done this a few times from different people.
You’ll most likely be happiest lending your £100 to the third person who has proven they’re good with credit. The second person is a bit risky because you don’t know how they’ll deal with credit as they haven’t borrowed before. And the first person is the riskiest because they have shown to be bad at dealing with credit.
Lenders want to make a profit from credit
It’s a bit different in the real world because lenders don't lend credit for its own sake.
Lenders, like any business want to make a profit. So they balance the risk that a borrower might not be able to pay them back with the interest rate they charge. They also don’t want to lend to lots of similar borrowers. They’ll lend to different types of borrowers, some less risky and some more risky. That’s why people with perfect credit scores, who pay the entire balance every month, might sometimes get rejected.
How can I find out my credit score?
You can get a good idea about how lenders might be assessing you by looking at credit reference agencies that record credit history. Experian and Equifax are the biggest and most well known. Both are authorised and regulated by the Financial Conduct Authority.
These companies don’t always hold the same information on you and might display how risky you seem to lenders in different ways. They might indicate your credit worthiness as a number, like 659/999 or with a word like, ‘poor’, ‘good’, or ‘excellent’.
They don’t even have the same numerical scale. Experian shows you a score out of 999, while Equifax shows you a score out of 700.
Use these as indicators to generally see where companies like Experian and Equifax think you’ll fall on a credit worthiness scale.
Think of getting credit like getting a date
Dating is a popular analogy for getting credit. You don’t specifically know what everyone is drawn to, so you need to present yourself in the best light.
You may put on your best clobber and fix your hair perfectly, but if you’ve got blonde hair and they’re specifically looking for someone with dark hair, it’s not going to work. Just as you can’t control what people are attracted to in the world of dating, you can’t control what lenders are attracted to in the world of finance.
It doesn’t always mean what you’re doing is wrong. It just means you’ve got to keep looking for your match and making sure you’re doing everything you can to look your best.
And, just like in the dating world, being seen to hit on all the people, all the time will turn the right one off. So, pick your moments carefully and don't apply for all the credit from all the companies.
How you might improve your credit score
The first thing you need to do is check your credit information held by the credit reference agencies. This should help with identifying what's affecting your credit score and therefore hopefully show you where you can improve your credit score.
There are plenty of guides out there, such as on MoneySavingExpert to help you approach improving a bad credit score if this applies to you.
Both Experian and Equifax give you access to a credit report. They'll also indicate your credit rating with some sort of credit score. Remember, credit scoring is not an exact science. Your credit reports will give you an idea of where you can start making changes to present yourself in the best light.
You can sign up to see your credit report and the score they've given you for free (although Equifax will charge you £7.95 per month after 30 days of free access). Sign up for an account at Experian, and sign up for an account at Equifax.
Get on the electoral roll to improve your credit score
This one may surprise you. Getting on the electoral roll can affect your credit score because it is an important factor that affects how companies confirm your identity. It can also speed up the credit application process because if they can't use the electoral roll to confirm your name and address, they'll have to ask for lots more documentation to confidently confirm your identity. Registering to vote removes the friction and makes it easier for the lender to be confident about who they're dealing with and therefore confident they can lend.
You don't have to wait until the next election rolls around to register to vote. Head to Gov.uk and register straight away. It might take a while for this to be reflected by credit reference agencies, so the sooner you do it the better. And, it makes sense to do it before you make any applications for credit like loans or mortgages.
Registering to vote is a very simple process where you answer some questions about you and the local electoral borough you need to register with. You'll need your National Insurance Number when you register.
Some people are hesitant to register on the electoral roll for fear of the council selling on their data. There's a slight difference though when it comes to what you register for:
Open register
You can opt out of the open register which can be used for marketing purposes.
Full register
You can't opt out of the full register which you must be on by law if you are over 16 and are asked to register.
If you're not eligible to vote in the UK
Don't worry if you're a non-commonwealth or non-EU foreign national and you can't register to vote. You can send proof of residency to the credit reference agencies and ask them to make a note on your file. Proof of residency can be things like a utility bill or a UK driving license. Not all credit reference agencies will accept the same documentation so it's worth getting in touch with each one for their advice on what they might accept.
Pay everything on time for a good credit rating
Missing, or being late with, a payment can have long-term negative effects on your credit rating. Just 1 or 2 late payments can really mess with your credit score and how lenders assess you. The more recent the late or missed payment is, the more likely lenders will reject you. It's obvious and it makes sense. But it's very easy to overlook. We're all busy people and even the most diligent of us can fall foul of not keeping up to date with everything. The problem is small errors like this can cost you years in negative credit assessment by lenders.
It can be worth keeping a spreadsheet of all the payments you need to make. Perhaps even put reminders in your calendar. Make sure you have enough money each month ready to cover your credit repayments. It might be worthwhile using a budgeting app if you have trouble keeping on top of your personal finances.
It might be a good idea to do as many payments as possible by direct debit. That means you don't have to burden yourself with remembering to pay. Be careful if you set up direct debits for just the minimum credit repayments though. Getting stuck just paying minimum repayments for a long time can suggest to lenders that you're struggling with the debt. So, why not set up a direct debit for the minimum payment, so you don't ever miss a payment, then top up with additional manual payments to reduce your debt. Having less debt should go towards improving your credit score.
If you get into deeper trouble and know you're not going to be able to make a payment, you should seriously consider getting in touch with your lender. They might be able to help and stop you free-falling into default and county court judgements. It's usually a good idea to confront these problems head on, rather than sticking your head in the sand.
Check who your credit history is linked with
Yup, your history is assessed by who you've been financially linked with as much as your own financial history. A partner or flatmate with a bad credit file can wreck yours too.
It's a good idea to get a handle on all financial products that you share with someone else. Even if you've got a 'joint rent' account with flatmates, their behaviour can affect your credit file and ruin your credit score. If your partner, flatmate, or friend's credit history is a little dodgy then keep your financial dealings strictly separate. There are 4 financial products that infer financial linking to a lender:
- joint mortgages
- joint loans
- joint bank accounts
- utility bills
Utility bills aren't always a cause for concern. You should only be linked when the energy company is confident there's a true link, for example, if you're married. Joint savings accounts are not recorded on credit files because they don't suggest how good you are with credit.
The 2 big ones are mortgages and loans because they are debt-based products that, if you handle poorly, will suggest to a lender you're a riskier customer.
Be careful with joint credit cards. Although they are a debt-based product, a second card on a credit card is not a joint financial product. But, if the person you've allowed to spend credit under your name goes wild, your credit file will bear the brunt. In other words, be very careful who you give a second card to!
Once you've disassociated yourself financially keep an eye on your credit report to see if it's had a positive impact.
Credit score management after breaking up
If you've split up from a partner, you'll need to consider the financial implications on your credit score. You might also need to do this if you shared a financial product (like a bank account) with flatmates.
It's a good idea to be proactive and alert the credit reference companies that you are no longer associated with that person. You can call them up or find forms online for a 'notice of disassociation'. This can help protect your credit score.
But, be aware, this will only stop that person's financial behaviour from affecting your credit score in the future. All past financial behaviour will still impact your credit score so you'll need to remove yourself from any joint accounts and pay off any joint loans. You can't be disassociated if you have current financial commitments.
Credit applications impact your credit score
Just like missed payments, every time you make credit applications, they're recorded on your credit file by a credit reference agency. Applying lots of times can potentially impact your credit score because it may suggest you're desperate for credit. It's slightly tricky because you can only know if you'll be accepted by trying and applying.
There are searches called 'soft searches' that don't appear on your credit file but do give you an idea if you're likely to be accepted or not. There's no guarantee for any credit applications of course, so still apply with restraint. Every application might impact your credit score.
Services like MoneySuperMarket.com run soft searches that don't show up to lenders. So they can give you an idea of what you might be eligible for without affecting your credit score. Experian (a credit reference agency) also run soft searches so you can get a clearer idea on which loans and credit cards you might be successful applying for.
As ever, though, be careful with any credit application. You can still get rejected. So, apply knowing that there's still a chance you'll be rejected and the credit application will be visible to lenders.
Check old addresses on your credit report
Here's another simple fix. Having an old address on your credit file can cause you issues. Check your credit file going through the active accounts (credit cards, phone contracts etc). Make sure all addresses match your current address. Don't make it difficult for any lender to verify your identity.
If you get rejected for credit
The best thing to do is to make sure your credit report is up to date and shows the most recent information before you apply for credit. You want to try and protect your credit score at all costs.
If you've already applied for credit once and have been rejected, your second best option is to immediately check your credit files for errors after this first application. The danger comes when you make application after application and face rejection after rejection and only then look at check your credit file for errors. If you find and fix an error, you may still get rejected for credit, not because of the error but now because of the many rejected applications.
Think about each application very carefully. Each one might impact your credit score. So if you're planning to apply for a mortgage soon, consider not applying for any credit for the 12 months prior. Choose your applications wisely and act as if you have a finite amount of application goodwill.
You can sometimes get searches wiped after an error, but you have to negotiate with both the lender and the credit reference agencies which, as you might imagine, can be time-consuming and difficult.
Improve your credit score with a credit card
Important! Be careful when getting a credit card to improve your score. Make sure you're not living outside of your means and actually making matters worse. Only get a credit card to improve your credit file and credit score if you're confident you can stick to paying it off every month.
It's possible to improve your credit file and score by getting a credit card. Sometimes the credit card might be referred to as a credit rebuilding card which may help show that you're better at dealing with credit sensibly. That probably means you won't get a big credit limit to start because you need to earn back trust. Consider only using the available credit for things you would buy anyway. Then you won't risk overspending and missed payments.
It might be worth considering if you've had a credit card in the past, got into financial difficulty, but now you want to show you can be trusted and you're less risky for lenders.
It might also help to get a credit card if you've never had any credit before. Again, it's a possible way to show lenders how you behave with credit. This will help them assess how you're likely to behave in the future.
Make sure you only spend a small amount (around £50). Pay the full balance each month and avoid missed payments. After a year of doing this, you might see positive improvements to your credit file and score.
Timing your applications impacts your credit score
If you've got negative records on your account, like county court judgements or you've been made bankrupt, it's worth waiting the 6 years it takes for these events to fall off your record. Especially, if you're applying for lots of debt like a mortgage. Your score should improve when negative events aren't visible to lenders.
Withdrawing cash on credit cards might impact your credit score
It's not a great idea to withdraw cash from your credit cards. It might well impact your credit score. Apart from being charged for the privilege, that same charge suggests that you're not managing your money carefully enough.
Paying rent on time can help your credit score
Paying your credit card payments and bills on time is obviously good in the eyes of lenders and credit reference companies. But, paying your rent on time can help your credit score too.
Millions of tenants have signed up to the Rental Exchange Initiative which was launched in March 2016 by Experian and the The Big Issue Group. Its aim is to help lenders and credit reference companies see prompt rent payments as a sign of good money management and therefore lower risk of lending.
Signing up with CreditLadder sends the data to Experian and Equifax and is free to do. Credit Ladder is authorised and regulated by the Financial Conduct Authority. Keep an eye on your credit report to see if it's had any positive impact.
Payday loans can hurt your credit score
Getting a payday loan can be seen by some lenders as a sign of poor money management. Unfortunately, some payday loan companies have marketed payday loans as good ways to build up your credit rating, if you pay on time. Although this might be the case for people with a terrible credit history, for most people, using a credit rebuilding card could be easier and cheaper in the long run. Do everything you can to avoid payday loans.
If you're rejected, ask why?
It's a bit of a long shot. Most of the time you'll get a generic answer along the lines of you "not meeting the financial eligibility". There's a good reason for this though. It prevents people understanding how they failed so they can't game the system. Most applications go through a digital process (and not a human one) so there's less room for understanding the nuances of an individual's circumstances.
But, it's always worth asking why you were rejected. In the opaque world of lending criteria, any hint at what's stopping you (and therefore what you need to fix to help your credit report and credit score) might help you get accepted quicker.
Consistent applications help your credit score
Although the generally recognised rule is to not apply for too much at one time, when you do apply make sure you're consistent with your information.
People with the same address, the same phone number, and the same employer are all considered stable. Lots of changes in your life might suggest an element of risk because past behaviour is used to predict future behaviour. If you've changed jobs a lot in the past, you might change jobs a lot in the future. Whereas people who've had 1 job for a long time are likely to stay there and maintain that steady income. If you use lots of different details you might get flagged by fraud scoring.
What's fraud scoring?
When you apply for something, as well as working out if you're eligible, lenders want to know whether the application is legitimate. It's part of de-risking who they lend to and for them, it's better to be safe than sorry. Lenders use 2 main companies to help them discover fraudulent applications. Simple things like entering lots of different data across applications can flag you to these companies.
But you won't find information like this in your credit report.
Most major banks and building societies use a company called National Hunter, a company whose members are authorised and regulated by the Financial Conduct Authority. They aren't a credit reference agency like Experian. Instead, they look for inconsistencies between current and past applications. They also look at frequency of applications. If they spot something, they'll put a red flag against it for the lender to decide how to treat it. A lender can't reject you just because of a National Hunter red flag. They need to look further into the details.
The other company is Cifas, who hold a record of known fraud. If you were on it, you would probably already know about it. But be aware, if any fraud was committed at your address, it could appear on your Cifas file, even if you didn't commit the fraud. A lender can't reject you just because Cifas raised an issue. Again, they have to investigate the issue which hopefully should uncover any misattribution of fraud allegation.
In both cases, if you discover an error in the information held on you by either National Hunter or Cifas, you need to get in touch with the company who logged the information on your files in the first place. Neither National Hunter, nor Cifas will be able to remove the information themselves.
Make applications before big life changes
You need to look your best when making any application. So, if you're planning for maternity leave, taking time off, or suspect a redundancy, although you should never lie about your circumstances, it's maybe worth considering applying while you're in a steady financial position.
Cancel unused credit cards
There isn't a clear cut answer here because having too much available credit may be viewed negatively. But, having long-standing accounts open can be viewed positively, especially if it's an account where you've consistently paid more than the minimum repayment, on time.
You probably want to aim somewhere in the middle. Don't have access to lots and lots of available credit. But don't have access to no credit. Keep open the accounts with a good history. Close the ones that don't. And try very hard not to max out your credit cards. Constantly being at the edge of your credit limit doesn't look great.
Pay off debt before you save
If you've got a lot of debt it might be worth reducing it with any savings you might have. Overall reducing your debt can look good in lender's eyes. And debt usually comes with interest which over time builds up and may make the original amount you borrowed very expensive. For some people it may be a sensible decision to put their savings towards paying off their debt, reducing their overall cost on the money they borrowed. Then, once the debt is paid off, go back to saving again.
Dealing with defaults
A default is an example of when you didn't pay something that you should have. The more recent the default the more it's going to affect how lenders see you. Your recent behaviour is the most likely indicator of your future behaviour.
Defaults stick around on your account for 6 years. After this time, they fall off and you essentially have a clean record. The further they are in the past, the less likely they are to affect any current applications.
If the default is accurate, there isn't much you can do. That's why it's so important to try everything you can not to default. Even if you accidentally missed a payment, it may affect your credit score for years.
But, if you suspect the default is an error, you could try negotiating with the lender that reported it. If you're settling your debt with a repayment plan, you might try making it a condition of the agreement that the any default is wiped off your credit report. It's worth a try to avoid having it hang over your head for 6 years.
Wrapping up
Remember, credit scores aren't concrete things. What you're trying to do is present yourself in the best light possible. Scores from Experian and Equifax are a handy reflection of how you're doing but won't tell the whole story. Keep in mind that even perfect scores might get rejected because it's about what kind of person a lender wants to lend to. And, lenders want to make money, so having no credit history may be as detrimental as having a poor credit history.
But, in both cases, it is possible to improve your score if you follow a few simple ideas, put some work in to fixing things, and prove good money management over the long-term. Good luck!
