How to Improve Your Credit Score

Is your credit score too low? Perhaps your credit history is dotted with late payments because you were temporarily short of funds or (accidentally) a few days late on some monthly payments. Or maybe you have a more serious default or CCJ on your credit record. Whatever the situation, here are some steps to improve your credit history.

Check Your Credit Rating

Before anything else, check your credit report at one or more of the UK credit agencies (e.g., Credit Karma, Equifax, Experian, Transunion, ClearScore, etc.) to see where you stand and to be aware of any errors on your record. Fixing any errors (they do happen) can go a long way towards improving your record. Once you are confident that the report is accurate, the real work begins. Here are some steps you can take to boost your credit score.

Best Ways to Improve Your Credit Score

Reducing outstanding debt, showing that you make monthly payments on time and staying within credit limits are surefire ways to improve your credit score over time. There are some other strategies you might not have heard of, such as verifying your identity and even unlinking to financial associates (e.g., your ex).

StepsWhy is This Important?Implementation Tips
Improve Your Credit Utilisation RateToo much debt relative to your credit lines is a sign you are overstretchedConsidering transferring credit card balances to a suitable Balance Transfer card, then pay down that balance ASAP!
Make Payments On TimeShows you manage your financial commitments responsiblySet up payment reminders (available on most cards)
Verify IdentificationProves you are who you say you are; Important for Fraud avoidance.Register with your current address on your local electoral roll
"Unlink" to Financial AssociatesJoint mortages, bank accounts, or loans can adversely affect your credit history, if your associate has a flawed credit reportClose any joint accounts; request the credit agencies place a Notice of Disassociation on your credit report

If you decide to take out a new credit card for bad credit with the intention of rebuilding your credit score, be sure to use the card to your advantage. That is, always pay on time and stay under the credit limit.

While it's crucial to make the minimum monthly payment each cycle, try to go above and beyond—by paying the whole balance each month or as much as you possibly can. This way, you'll limit interest charges and become debt free sooner.

Should You Close Underused Credit Cards?

Keeping unused credit cards open can actually be beneficial. While you may have heard advice to close unused accounts, there are two reasons to consider keeping them open. First, length of credit history is a component in your credit report. The agencies factor in the length of time you’ve had credit accounts open and the general rule of thumb is, "The best credit is old credit." So it can be wise to leave your oldest accounts open, even if you don’t use them much.

Credit Utilisation

The second reason to keep an underused credit card open is to manage your "credit utilisation" score. Credit utilisation is a measure of how much you have borrowed relative to your credit limits. For example, if you owe £900 on a credit card with a credit limit of £1,000, then your credit utilisation is 90% (£900/£1,000)—which is high. (Ideally, keep your credit utilisation below 30%.)

Lower credit utilisation is better, because it indicates that you are not maxed out or strained financially—you still have room to borrow. Closing a credit account will lower the sum of your available credit limits, consequently raising your credit utilization score. Keep these points in mind when deciding which accounts to keep open, and which to close.

Why is Your Credit Score so Important?

A good credit score can open doors to a wider array of financial products and potentially lower interest rates. Often, the most rewarding credit cards are available only to those with good/excellent credit ratings.

In addition, those with a high credit score may pay a lower interest rate on any lent money. So, improving your credit score can directly save you money in interest payments. A worthwhile investment!

FAQs

Improving your credit score can take months or years, and a lot of patience—it really depends on where you start and where you want to go.
Each credit agency has a different scale—click here to see what is a bad, good or excellent credit score from Equifax, Experian and Transunion (VantageScore 3.0).
Yes, renters can opt in to The Rental Exchange, which uses rental payment data in the same way as mortgage payment data. It's free to sign up.
Paying interest doesn't directly affect your credit score. However, paying interest is a sign that you have outstanding borrowings—if these are high relative to your credit lines/limits, then your credit utilisation will be high and this can negatively affect your credit score.

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