A good credit score can help you get a mortgage, take out a credit card or even get a better deal on a smartphone. But how can you improve yours? Here’s what you need to know.
What’s a credit score?
Your credit score (or credit rating) indicates how reliable you might be at paying back money you borrow.
The higher your credit score, the better. It shows that you have a history of managing your finances wisely and making payments on time.
Read more about how lenders use your credit score and how they work.
Do you need credit to get credit?
You’re unlikely to get a good credit score if you have no credit history, as credit reference agencies can’t know whether you’re reliable at repaying money.
But you don’t need to take out credit cards to establish a credit history.
If you’re starting, simple ways to establish your credit score include:
- opening a bank account
- having a utility bill in your name
- taking out a mobile phone contract
Improving your credit score
Your credit score isn’t set in stone and will change as you apply for, take out, and use more financial products. The good news is that you can improve your credit score in several ways.
Register to vote
It sounds simple, but making sure you’re on the electoral roll is a quick and easy way to improve your credit score.
Being on it proves that you are who you are. It also reassures lenders that you’ve got nothing to hide, as many people looking to avoid authorities don’t want to appear on the roll.
Keep within credit limits
Lenders judge your ability to repay by looking at the credit you use compared to your available amount.
Using less than half of what’s available makes you look better as a borrower than being at the maximum limit of your credit card. The same logic applies to loans and overdrafts.
Spread out credit applications
Every time you complete a formal credit application, a hard search is carried out on your credit history, which stays on your file for a year. Avoid applying for more than one new financial product at a time if possible.
Several hard searches in a short period may send alarm bells ringing with lenders, who could decide you’re getting into too much debt too quickly.
Merging several debts into one new loan is known as debt consolidation. You might consolidate debts to make payments more manageable and improve your credit score – eventually.
While consolidating debts may lower credit scores in the short to medium term, if you make regular, on-time payments and pay off the debt in a reasonable time, it should improve your score in the long term.
Joining forces with someone responsible and managing repayments well together can improve your credit score.
However, if your counterpart isn’t good at maintaining their finances, it’ll also reflect poorly on your credit score.
So, if you’re thinking of taking out a joint financial product with someone, try to make sure you know how well they maintain their finances beforehand.
Monitor your score
You can easily find your credit score for free via the three main credit reference agencies: Experian, Equifax, and TransUnion.
Each agency weighs the data differently, so your credit score may vary between CRAs. Generally, checking your credit report with each agency at least once a year is advised.
How long does it take to improve a credit score?
There’s no quick fix to getting a better credit score. Depending on whether you’re starting from neutral or repairing a negative score, it could take several months or several years.
It’s a bit like building a relationship: it takes time, trust and nurturing. But ultimately, you’ll get back what you put in.
Prioritise making all your repayments on time and put the suggestions above into action and you’ll be on your way to improving your credit score.