How to improve your credit score

Why does your credit score matter?

Your credit score matters because with a higher credit rating you’ll be offered more loans and credit cards, and at cheaper interest rates, than if you have a poor credit score.

Your credit score shows lenders, at a glance, how well you’ve managed your money. This can be paying your bills in full and on time every month: mobile phone, utility bills, car insurance, monthly hire purchase payments and loans. It also looks at credit card debt and repayments and how much of your available credit you are using (your credit utilisation ratio).

If you apply for a loan, credit card or even a mortgage, the lender will check your credit score. Companies may also check your rating if you’re taking out other products that require you to pay in monthly instalments. So, it’s important to make sure your credit rating is accurate and take steps to improve it if you can.

A spokesperson for the trade body UK Finance explained: “Before a financial services company offers someone credit, they look at various sources of information to work out whether someone is likely to be able to repay the borrowing. A higher credit score will mean you are more likely to be accepted when you apply for credit.”

How are credit scores calculated?

Credit scores are calculated by credit reference agencies. There are three main ones in the UK: Equifax, Experian and TransUnion.

The agencies draw up full credit reports, which include information such as your address, bank accounts, debts, payment history and whether you are financially linked to anyone (such as you share a bank account, loan or mortgage with your partner).

Each agency uses its own method to calculate a number based on various credit score factors. The higher the number, the better your credit score – and the more likely you’ll get the best deals.

Here are some factors that can influence your credit score:

Strategies to improve your credit rating

It’s worth having a strategy to improve your credit rating. There are credit repair companies offering paid-for services promising to increase your credit score, but you shouldn’t need to pay. The good news is there are some simple ways to give your credit score a boost.

Monitor your credit report regularly

First, you need to monitor your credit reports regularly. You can check your credit report for free either direct with each reference agency or through a third-party app. Use Clearscore to get free access to your Equifax report, and Credit Karma to access your TransUnion report. You can often set up alerts so you’ll be notified of any changes.

For Experian, you can either sign up for a free 30-day trial to look at your credit report (it’s then £14.99 a month unless you cancel immediately) or you can view just your credit score for free.

Look out for errors and get them corrected (more on this later in the article). If you notice a credit search that you don’t recognise, contact the company and ask it to notify the credit reference agencies to remove the search from your credit report. If you think your details have been used without your permission, tell Action Fraud. You can also speak to the credit reference agencies for advice.

Credit monitoring will help you spot ways to repair a bad credit score and build up your credit rating.

Register to vote

If you’re not on the electoral roll, one of the simplest things you can do to boost your credit score is to register to vote. This can be done at any time on gov.uk, and you can do this even if you’re living with flatmates or at home with your parents.

If you’re worried about receiving junk mail, you can opt out of the “open electoral register”, which is used for marketing.

Pay on time and stay within your limits

Making your credit payments on time each month is a good way to show lenders you’re a responsible borrower. If you’re worried you might forget, set up a direct debit so you’re never late or miss a payment in future. And stay within your credit limits – if you exceed your credit card allowance, it could suggest you struggle to control your spending.

To boost your credit rating, you’ll want to keep your credit utilisation ratio nice and low. This metric refers to how much of the available credit you’re using - for example if your credit card limit is £1,500 and you spend about £1,200, your ratio is 80%. Experian recommends keeping it below 25%. According to Equifax, “reducing your credit utilisation demonstrates a consumer’s credit worthiness”, which can improve your credit score.

Fix any errors

If you discover any errors, such as a default on payments or the wrong address, you should ask the credit reference agency to correct it. Check if the mistake is on your other credit reports, and phone or write to the agencies accordingly.

If you are disputing a default, you could add a notice of correction on your report, such as "the debt was for a pair of trainers but they never arrived so I didn’t pay it”.

If you have contacted the credit reference agency and the lender and they are not willing to correct the error, you can complain to the Information Commissioner’s Office (ICO).

You may also be able to escalate the dispute to the Financial Ombudsman Service (FOS). The Ombudsman deals with complaints about banks, insurance companies and other lenders. It can investigate the matter, and if it rules in your favour, ask for the information to be removed or altered, and order compensation if appropriate.

Maintain optimum mix of accounts

You should close any old credit cards or store cards that you don’t use any more, as these can harm your credit score. It’s fine to have a mix of bank accounts and credit cards, just make sure they are used regularly.

There are a couple of caveats here:

1. Do keep open the card you’ve had the longest. Long-term financial relationships are likely to be viewed in a positive light by lenders. So, if you've had one card for eight years, and your others are less than two years old, shutting the old card could have a negative effect on your creditworthiness.
2. Don’t close the only credit card you have. This is because there won’t then be any evidence about how you manage card debts, and it will be difficult to assess your riskiness as a borrower.

Live at the same address

Avoid frequently moving address if you can, as lenders like to see stability. They may worry you’re having trouble paying rent if you keep moving.

Avoid multiple credit applications

Don’t apply for too many credit cards or loans in a short space of time.

Use a free eligibility checker before you apply as this does a “soft credit check”, which avoids leaving a footprint on your file. Soft checks happen when you check your own credit report, and when a lender looks to see whether you’re eligible for a particular product. These do not affect your credit score.

A “hard credit check” occurs when you apply for, say, a credit card or loan and the lender looks closely at your credit report. Too many of those can lower your credit score.

Don’t use credit cards to withdraw cash at ATMs

Using credit cards to withdraw cash is a bad idea, as you’ll likely be hit with a high interest rate. But lenders may also view these withdrawals as evidence of poor money management.

Linked partner accounts

Be aware that if you have a joint bank account with housemates or a partner, their credit history can affect your credit score. If they have a poor credit rating, try and keep your finances separate. If you've split up with your partner or moved out of your flat-share, make sure you unlink your finances.

Rent reporting services

You may be wondering how to build up your credit score if you’re renting. There are several free schemes that add rent payments to your credit file, meaning if you pay your rent on time, it could give your score a decent boost. Choose from Canopy or Credit Ladder (or both), and/or ask your landlord to sign up to the Rental Exchange initiative.

Canopy adds rent payments to your Experian credit file for free (or you can upgrade and pay £4 a month to get the information added to all three credit reference agencies) while Credit Ladder reports your rent payments for free to either Experian, Equifax or TransUnion – you can pick which one. Or for £60 a year, it'll report your rent payments to all three.

Credit builder products

Credit builder products are useful for repairing bad credit scores. If you have a poor credit score, or limited credit history, a credit builder card can show companies that you can make your payments on time each month and improve your credit rating.

Credit builder credit cards are like standard credit cards and are offered by a range of banks and financial providers. They usually have a much lower credit limit, and a higher interest rate if you don't repay on time. So, try and pay it off in full each month, and don’t withdraw cash at ATMs with it.

Other options include taking out a Loqbox loan or using a BuildMyCreditScore debit card.

Benefits of having a good credit score

Having a good credit score could mean you qualify for cheaper short-term loans and more choice of who to borrow from.

You could get better deals on credit cards and mobile phones and move closer to qualifying for a mortgage – or get a cheaper interest rate on your current mortgage.

Lower interest rates

A good credit rating can open the door to lower interest rates, which will make borrowing cheaper. It can also improve your chances of being approved for a low interest loan or a 0% purchase credit card.

Meanwhile, if you want to spread the cost of insurance over a year, having a good credit score can reduce the interest charges you pay. These can all potentially help with debt management.

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Borrowers with a good credit score can also benefit from more options. For example, there may be a wider range of products and providers to choose from, and you may be able to secure a higher credit limit.

Boosting your credit score: FAQs

How long before I see an improvement in my credit rating?

It can take a few weeks for new information to appear on a credit report and for you to see improvements. You may also need to wait a little while to make several monthly payments on, say, a new credit card for it to affect your credit score.

What is considered a good credit score?

Each credit reference agency assesses a borrower’s credit history differently and uses a unique scoring system, a bit like their own credit score calculator. We asked the three main agencies what they consider to be a good or very good credit score:

• Experian – 881 to 960
• TransUnion – 604 to 627
• Equifax – 531 – 810

And here’s what is considered an excellent score:

• Experian – 961 to 999
• TransUnion – 628 to 710
• Equifax – 811 to 1000

How much can I improve my credit score in a day?

You can start to improve your credit rating by spending a day sorting out some of your finances. Quick bits of credit building admin include:

• registering to vote
• setting up direct debit payments
• using savings to pay off debts
• closing old accounts
• joining a rent reporting service.

However, be aware that it can take weeks, or months, for your actions to filter through to a higher credit score. For example, you may need to make at least one direct debit payment or rent payment before you see a change in your score. It also depends how quickly the information is sent by lenders and other financial companies to the credit reference agencies.

Fixing any mistakes on your credit report can have a speedier effect on your credit score, as these changes are usually applied straight away. If you receive daily credit score updates, you should see your score change the day after a mistake is corrected.

What debt should I pay off first to raise my credit score?

The first debts to pay off to raise your credit score are any late payments. These can severely damage your credit report, so get all your payments up to date. Outstanding payday loans can also be a red flag to lenders, so try and pay those off too.

Next, check which debts have the highest interest rates. By targeting those, you can reduce your monthly bills and boost your credit score.

According to Experian, if you have credit card debt, you may be able to make some quick credit rating improvements. If you’re close to the limits on any cards, that could have a big impact on your credit score. John Webb, consumer affairs manager at Experian, said: “By trying to reduce the balance to around 25% of your credit limit, you could improve your credit score.”

Summary: improving your credit score

Improving your credit score is a constant task. Monitor your credit score regularly and fix any errors.

Stay well within your credit limits, ideally using less than 25% of the credit available to you. Pay the monthly minimum each month and more than that on your credit card, if possible. Try to clear your debt as often as you can. Don’t make too many credit applications.

If you do get into difficulty, don’t put off tackling it – speak to creditors and put in place a repayment plan. And stick to it.