How to build a credit score

How to improve your credit score

There are numerous steps you can take to build and improve your credit score:

1. 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 could remain on your credit file for up to six years.

Avoid late payments by setting up a direct debit for ALL bills, where possible.

2. Keep your credit utilisation low

Your credit utilisation is the percentage of your credit limit you use. For example, if you have a credit limit of £1,000 and use £500, your credit utilisation is 50%.

Lenders see a low utilisation percentage as a big plus - it can also increase your credit score.

3. 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.

A regular check of your credit report could also uncover any fraudulent activity that you weren’t aware of, helping protect your credit score. If you see any suspicious activity, raise this immediately with your lender or the big three credit reference agencies - Experian, Equifax and TransUnion.

Examples of fraudulent activity on your report include:

• A surge in the amount you owe

• An application you didn’t make

• Being linked to an address you don’t recognise

• An increase in hard searches you don’t recognise

4. Get on the electoral roll

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

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

Not eligible to vote in the UK – so can’t be registered for the electoral roll – but can give proof of residency? You can ask credit reference agencies to add a ‘notice of correction’ to your credit file. This may help you get credit if you’re a foreign national and can evidence to lenders you have a fixed long-term UK address.

5. 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 could have a huge impact on your credit score for years to come. So only borrow what you can afford to pay back.

At the very least, make sure you’re able to pay the minimum monthly repayments.

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

If you share a home, 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 pay them on time. If you’re contributing to the household bills each month but they’re in someone else’s name, only they will benefit.

7. Diversify your credit mix

Having a variety of credit types, such as credit cards, instalment loans, and retail accounts, can improve your credit score. Lenders like to see that you can manage different types of credit responsibly.

But it’s important to note that you shouldn’t take on more credit unless you really need it. Only take on new credit if you can manage it well.

8. Think about applying for a credit-building credit card

If you have a bad credit history, or little history at all, you might want to think about applying for a credit-building credit card. If you’re accepted, you may be able to improve your score and potentially unlock better deals in the future.

It will give you the chance to prove that you’re able to make all your repayments on time. It also allows you to demonstrate that you can manage a credit card balance or other lines of credit.

How to maintain a good credit score

Once you’ve improved your credit score, it’s important to maintain it. Here are some tips to help you keep your credit score healthy:

1. Keep old accounts open

Closing old credit accounts can reduce the average age of your credit history, which can negatively impact your credit score. If you have old accounts that are in good standing, it’s often better to keep them open. This shows lenders that you have a long history of managing credit responsibly.

2. Use a soft search eligibility checker

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

Before you apply for a credit card, 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.

3. 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.

4. Think about your partner’s credit history

Applying for a joint bank account, mortgage or loan with someone else financially links you together. 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.

Having separate finances could also make things easier if you split up. If you have joint finances and decide to call it a day, you’ll need to contact the credit reference agencies. Ask them for a letter of disassociation – this will stop your ex’s credit history affecting yours in the future.

When it comes to asking for a notice of disassociation, keep in mind that:

• You’ll need to close any joint bank accounts or pay off any joint loans before you can ask for one.

• Each credit reference agency will need to be contacted individually – updating one doesn’t automatically update them all.

• You’ll have to be ready to give proof that your financial connection with your ex has come to an end.

5. 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 could also be a red flag for lenders who may think you’re having trouble managing your finances.

6. Try to avoid regularly moving home

Sometimes moving can’t be helped, but lenders like stability. They could see moving home regularly as a sign that something’s wrong, for instance, issues with paying rent.

7. Use credit monitoring services

Think about signing up for a credit monitoring service. These services can alert you to any changes in your credit report, helping you to quickly address any issues that may come up. They can also offer tips and insights on how to improve your credit score.

How long does it take to build my credit score?

If you were hoping to increase your credit score quickly, keep in mind that it can take several months for your score to improve. That’s because it takes time for credit agencies to make sure they have the most relevant information about how you’re using credit.

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