Building your credit score

Unsure what makes a good credit score? Our clear guide explains what this means and outlines the steps you can take to improve your credit score.

Unsure what makes a good credit score? Our clear guide explains what this means and outlines the steps you can take to improve your credit score.

Anelda Knoesen
From the Money team
minute read
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Posted 5 FEBRUARY 2021

What is a credit score?

A credit score is a 3-digit figure used by lenders to determine if you’re a high or low risk when it comes to borrowing. It can give you an indication of how likely you are to be accepted for credit.

Your credit score is based on your credit report, which is a summary of how you’ve managed credit in the past. To be clear, credit means borrowing money under the agreement you’ll pay it back later.

Where can I find my credit score?

You can get your score by using a credit reference
agency. Three examples of these are Experian,
Equifax or TransUnion (formerly Callcredit)
Each of these companies will be able to provide
you with your credit report. If you’d like to find
detailed information on your report, each agency
offers access for free for a limited period:

  • Experian will give you your credit score for free,
    but you won’t have access to the full report. Alternatively, you can use their CreditExpert
    product for 30 days for free (after that, it will
    cost you £14.99 a month).
  • Equifax also gives you free access for 30 days (it’s then £7.95 a month).
  • TransUnion also offers you a free statutory credit check.

Prices correct as of February 2021.

Did you know?

Credit blacklists don’t exist. Many people with a poor credit score worry that they’re on some kind of universal ‘blacklist’. This is not true. Each lender has their own criteria and may score you differently.

But I don’t even have a credit history, so why do I have a low credit score?

It may seem a bit unfair that you’re given a low credit rating just because you don’t have a credit history. But lenders base the risk of lending you money on your repayment history and debt management. If you’ve never had a credit card, loan, mortgage or overdraft, they have no evidence of your ability to pay back what you owe.

To start building up a credit history, consider taking out your first credit card and making a few small purchases. Be sure to pay back the full balance each month to show you’re capable of good money management.

What are the benefits of having a good rating?

A good credit rating can improve your chances of successfully applying for credit in the future. A high score shows lenders that you’re able to manage your finances sensibly and can make repayments on time.

Benefits of a good credit rating:

  • It could unlock lower rates of interest, which could make borrowing cheaper.
  • You might be able to get a higher credit limit and borrow larger amounts, which could be particularly useful when applying for a mortgage.
  • You might gain access to promotional offers and a wider range of offers and lenders.

How can I build up my credit score?

There’s a number of things you can do to help improve your credit score:

1. Get on the electoral roll

Register to vote. It’s quick to do so, even if you live in shared accommodation. Credit providers use this information to confirm your details are correct and it’s a key factor in building your credit history.

You can register to vote at any time on the Gov UK website.

2. Check your credit report for any mistakes

Before you apply for credit, check that your credit report is accurate and up to date. If you’ve moved over the past few years, make sure the registered address is your current one. Also check that any old accounts have been closed.

A regular check of your credit report could also unmask any fraudulent activity that you weren’t aware of, helping protect your credit score. If you see any suspicious activity, like a surge in the amount you owe or an application you didn’t make, report it immediately to your lender.

3. Always pay on time

If you meet all repayments and repay outstanding debts on time, your score is likely to improve. But the opposite is true if you miss payments. A missed or late payment can remain on your credit file for up to six years. That’s a long time to have a black mark because of a bill you forgot to pay. Avoid late payments by setting up a direct debit for utility, phone and credit card bills.

4. Make sure your name is on some of the bills

If you share a house, make sure your name is on one or more of the utility bills, for example, gas, electricity or water. Utility bills in your name can help boost your credit score. If you’re contributing to the household bills each month but they’re in someone else’s name, only they will benefit.

5. Beware of your partner’s credit history

If you’re setting up home with someone else, it’s not unusual to take out joint financial products. Applying for a joint bank account, mortgage or loan means that you’ll be financially linked. If your partner has a poor credit history, it could affect your own chances of getting credit in the future. If this is the case, it’s best to keep your finances separate.

And having separate finances can make things easier if you split up. If you have joint finances together and decide to call it a day, you’ll need to contact the credit reference agencies and ask for a letter of disassociation. This will stop your ex’s credit history affecting yours in the future. You’ll need to close any joint bank accounts or pay off any joint loans before you can do this though.

6. Use a credit-building credit card

If you’re concerned about having a poor credit history, think about applying for a credit-building credit card. If you’re accepted, you might be able to improve your score and potentially unlock better deals in the future. That’s because you’ll have a chance to prove that you’re able to make all your repayments on time and can manage your lines of credit.

With this type of card, you can expect any initial credit limit that you’re offered to be fairly low and interest rates to be high. So, before you apply, it’s crucial that you work out a budget to ensure you’re able to pay off more than the minimum amount each month. Setting up a direct debit is one way to help you do this.

Find out more about how credit building cards can help you build up your credit rating.

7. Consider getting a pre-paid card instead of a credit card

Applying for a credit building pre-paid card is an alternative to getting a credit card. Pre-paid cards allow you to load cash on to them to spend in any way you choose. They can also be a useful alternative to carrying cash.

8. Cancel any unused accounts and cards

Cancel any credit cards or store cards that you no longer use, as lenders keep a sharp eye on the amount of available credit you have access to. This also goes for bank accounts you haven’t got around to closing or old mobile phone contracts that remain open.

9. Avoid using your credit card to withdraw cash

Using a credit card to withdraw cash from an ATM can be very expensive. You’ll be hit with high fees and interest, especially if you take out money using your credit card abroad. It can also be a red flag for lenders who may think you’re having trouble managing your finances.

10. Use a soft search eligibility checker

Every time you make a credit application, a hard search will be marked on your credit report. If you’re rejected or make too many applications, it can damage your credit score.

Before you apply for credit, use a soft search eligibility checker to find out how likely you are to be accepted. A soft search of your credit report can only be seen by you, not the lender. It won’t affect your credit score in any way.

11. Don’t keep applying

If your application has been rejected, don’t keep applying elsewhere. Every time you apply for credit, it leaves a footprint on your credit file. Too many applications over a short period of time makes it look like you’re struggling financially and are desperate for money. It could make lenders think you’re a credit risk.

12. Pay insurance premiums upfront, if possible

If you choose to pay for your car or home insurance in monthly instalments, a hard search will usually be done beforehand. It could also end up costing you more in interest charges over the course of a year. If possible, pay upfront to avoid any hard searches being marked on your credit file.

13. Only borrow what you can afford to pay back

Getting into deep debt is never a good thing. Struggling to make repayments could eventually lead to a County Court Judgment (CCJ), Individual Voluntary Agreement (IVA) or even bankruptcy. These can stay on your credit file for up to six years and can have a massive impact on your credit score for years to come. Only borrow what you can afford to pay back. At the very least, make sure you’re able to pay the minimum monthly repayments.

How long does it take to improve my credit score?

Once you’re using credit responsibly, it can take up to six months for your score to improve. That’s because it takes time for credit agencies to ensure they have the most relevant information about how you’re currently using credit.

Just be aware that opening a new current account or getting a credit card could lower your score for a while.

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