How does your credit score affect your life?
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Lenders look at your credit score to see how reliable you’ve been with credit in the past. Our guide coves how to improve your score – so you’ll have access to a wider range of cards, loans and mortgages
Give your score some TLC
Knowing your credit score allows you to understand how lenders might view any applications you make for a new credit card, loan or mortgage – and crucially whether you’re likely to be accepted or rejected.
When it comes to borrowing money, including loans, credit cards, mortgages, or even using services like buy now pay later, lenders will look at your credit score to decide whether to lend to you – and on what terms and interest rates.
Your credit score is used to evaluate your level of risk to lenders, by looking at whether you’ve managed credit responsibly in the past. In simple terms, a good credit score is a way of showing lenders you’re responsible with money and can borrow and repay in good time. A good credit score can also give you access to a wider range of products, lower interest rates and APRs and a higher credit limit so you can borrow more money at better rates if you need to in the future.
There are a few ways you can check and monitor your credit score. You can ask for a copy of your credit file for free from one of the three main credit reference agencies in the UK - Experian, Equifax and TransUnion, who will have a record of your credit rating.
If you’re after quick access to your credit score, Credit Monitor will show you your credit score, and offers handy tips on how to improve it – all for free. You can also see what you’re doing right when it comes to managing your cash – and how that impacts on your score.
Not sure where to start when it comes to strengthening your credit rating? Here are some ways you can improve your credit score:
Get on the electoral roll
Being on the electoral roll serves as proof of address and is checked by lenders as part of your credit score. If you're a student, it doesn't matter if this is your term-time address or your parents’ address. Just make sure you’re on the register and that you use the same address on any borrowing applications you make.
You could improve your credit score by not changing your address too often – lenders like stability. If you do move house, remember to register to vote again.
Check your credit report accuracy
Your credit report holds details on your financial history, including whether your accounts have been settled or if you have missed payments. Sometimes this information can be incorrect, so check your credit report for its accuracy. If something seems to be missing or there are errors, contact the provider to correct them. Similarly, you can add a ‘notice of correction’ which allows you to explain why a payment was missed.
Pay your bills on time
A missed payment can leave a mark on your file that could negatively affect your rating for a long time. That’s why it’s important to pay your bills on time (including your phone bill!) and set up direct debits so you don’t miss anything.
Build your credit history
If you’ve never borrowed money before, there won’t be any evidence that you’re a responsible borrower who can pay money back in good time. So, if you’ve just turned 18 or have spent years being frugal it can actually work against you when it comes to your credit score.
A good way to build a credit history is with a credit builder card. These cards often have higher interest rates, so make sure you pay off the balance in full each month.
Don’t use all available credit
How much of the available credit you spend on your credit card is known as your credit utilisation. For example, if you have a £2,000 limit and spend £500, your credit utilisation ratio is 25 per cent.
If you keep your credit utilisation relatively low, potential lenders will view you as managing your finances responsibly and not being stretched to the limit every month.
Close unused credit card accounts
If you’ve applied for several credit cards over the years, you may find some of them aren’t used anymore. If that’s the case, it’s best to close those unused accounts.
You'll then lower the total amount of credit available to you. A large overall credit limit, even if unused, can be seen negatively by some lenders – as even though you aren’t indebted you have the potential to borrow a substantial amount.
Mistakes can happen on credit reports which can affect your credit score. Here are some ways you can correct errors on your credit report:
Tell the lender
If you spot a mistake, let the relevant bank or card provider know. They may amend it straightaway, or you may need to go through their official complaints' procedure. They will also update all the credit reference agencies they use, so you won’t have to submit more than one request.
Contact the credit scoring agency
There are three main credit reference agencies in the UK = Experian, Equifax and TransUnion (which is the company used by our Credit Monitor service). They all have online forms where you can detail any mistakes you see and ask for corrections.
Add a notice of correction
If you can’t get an error fixed, you can add a ‘notice of correction’ to your credit file. This gives you up to 200 words to explain what happened and why you shouldn’t be judged for it. For example, if you missed a payment because of a period of ill health.
If you have a county court judgement (CCJ) against you, your credit score can be affected. To improve your credit score, you should try and clear what you owe as quickly as possible. Even though CCJs remain on your file for six years, they will be marked as settled when you pay them off.
The court should update the credit reference agencies when you pay, so check your credit report to see if they are marked correctly. If there is a mistake and you need proof of payment, you may have to apply to the court for a ‘certificate of satisfaction’. You have to pay a fee for this but doing so will improve your credit rating.
Having a credit card can improve your credit score if used responsibly. Using a credit card and paying the money back in good time will show lenders that you can handle credit. Make sure you clear the balance every month so you don’t face interest charges – it may be a good idea to set up a direct debit to avoid the risk of missing any payments.
If you’re looking to build your credit score through taking out a credit card, then a credit builder card may suit you. Credit builder credit cards typically come with higher interest rates and lower borrowing limits but when used properly they can help evidence responsible credit use and should improve your credit score.
Your credit score isn’t likely to improve overnight, but with the right action you should start to see improvements over time.
With the right steps, like meeting your repayments, registering on the electoral roll and checking your credit report for errors, you should see improvements to your credit rating. You can keep an eye on your credit score, with quick tips on how to improve it with Credit Monitor.
While missed payments and breaking credit limits can stay on your file for up to six years, developing good financial habits is the best way to improve your credit score over time.
You won't need to check your credit score every day for improvements - but your file is updated every month, so it’s a good idea to check it regularly. You may also want to check it a short time after making any new credit applications or taking any measures to improve your credit score, like closing old accounts or registering on the electoral roll.
You can check your score and credit report for free as often as you like with Credit Monitor.
Watch your credit score grow and get alerts if there is any suspicious looking activity on your file – so you can avoid being the victim of fraud.
You’ll also receive regular updates and free tips and advice on how to keep improving your score.
Give your score some TLC