A simples guide

How to improve your credit rating

Having a good credit rating will typically improve your ability to borrow money, giving you access to the best rates for products like credit cards, loans and mortgages. If your credit rating isn’t quite as good as it could be, or you’ve had previous credit troubles, we’re here to help show you what you could do to improve things.

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What’s a credit rating?

First things first, let’s remind ourselves what we mean when we say credit rating. Typically, the term (often referred to as credit score) comes from credit reports.

When you apply for credit, a lender will look at your credit rating to help them decide how likely you are to be able to repay them. This includes information you’ve provided such as your job, your income, etc…. See our credit score explained page.

credit card

Why’s your credit rating important?

Lenders typically rely on three things when they make credit decisions:

  1. The information you provide on your credit application
  2. Any information the lender already has from dealing with you in the past
  3. Your credit rating

Your rating then is an important part of the lender's decision as to whether to lend you money. More than that, it also helps a lender to decide how much to lend you and potentially also what interest rate to charge.

credit score

What can you do to improve your credit rating?

Before you can improve your rating, you need to know what your score actually is. You have a statutory right to review your credit ratings from each of the three agencies. They’ll cost you £2 each. It is not necessary to check more than one unless you think there is a problem and you want to make sure they’re not saying different things.

It’s worth doing this annually just to check there are no issues but also before you make a major credit application.

Quick things to help

There are some things that you can do to help improve your credit rating immediately.

  • Get on the electoral register. Lenders use the electoral roll to check against fraud by checking that you actually live where you say you do. If you’re not on the register, they can’t do this simple check.
  • Cancel credit cards that you don’t use any more. Having a credit card per se, doesn’t help your credit score, only using it responsibly does. If you’re sitting on unused cards, you’re simply increasing fraud or theft risk.
  • Update addresses. Often we move house, set up a redirect and don’t bother changing our addresses with different companies. Taking an example, if you have credit cards listed at old addresses when applying for new credit, you could find yourself rejected due to failed ID checks.
  • Don’t apply for more credit until you’ve sorted out any issues. Any applications for credit will leave a ‘footprint’ on your credit report for one year (although it won’t show the outcome of that application). So be cautious about the number of applications you make as multiple applications can be viewed negatively by the companies that you are applying for further credit with.

Longer term actions

Some things help over the longer term or in an ongoing way, such as:

  • Don’t miss payments. It sounds simple but sometimes we just forget to make payments on time. Even a couple of missed payments can have a negative effect on your credit rating.
    Setting up direct debits will help automate repayments each month.
  • Be careful who you link up with. Be careful when taking out joint financial products. If you’re financially linked to someone it means that that persons rating could affect yours too.
    If that person has a poor history, it could be beneficial to separate your finances. This applies to joint mortgages, loans and bank accounts.
    In the same vein, if you split up with someone you were previously linked with, it’s important to check your credit reports to make sure they have also severed those ties.
  • Only apply for what you need. Avoid applying for too many things, particularly in a short space of time. You could give the impression that you’re desperately in need of credit, which could lead to rejections when you actually really need the credit.
  • Never ignore a rejection. If you’re turned down for credit, don’t just ignore it. Though you’ve no legal right to be told why, it is always worth asking the question of the lender to see if they will give you more information.
    If they can’t, check your credit rating before reapplying.
  • Build good history. There isn’t a quick fix to engineer an immediate uplift in your credit rating. It will take time to build a decent credit history. Having a credit card that you use, and repay each month will make quite a difference after about a year.

Obviously, if you’ve a poor history obtaining a card in the first place might be tough, but these days there are credit cards designed specifically to help people build or repair credit histories . They’ll potentially come with very high rates of interest, so you’ll need to be really disciplined. Pay the card off in full and on time every month and you’ll pay no interest whilst helping your credit rating move in the right direction.

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