Why and how to increase your credit score

Your credit score is a measure that most lenders use to assess how credit worthy you are. It is based on a range of factors, including how you have conducted previous credit agreements like mobile phone contracts, credit cards, mortgages and bank accounts.

The higher your credit score the more likely you’ll be able to access credit and the less you’ll pay in interest.

So if you need to borrow money in the future, you need to keep a careful eye on your credit score.

If you have a low credit score, increasing it will take patience, as it’s not something that can be improved overnight. This is why you need to leave plenty of time to improve it before applying for credit. But if you can start to organise yourself and take action, you’ll find that there are some easy ways to increase your score.

DO

Get rid of high levels of debt

Clearing large amounts of debt will significantly improve your credit score but this may take some time, while your debt issues are being resolved. Many people struggle with high levels of debt, and it’s so important to attempt to resolve any problems  before applying for any further credit.

A solution such as an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP) may be the best way to sort a serious debt problem, but if used, you may have to wait longer before you can start to rebuild your credit score. IVAs, for example, will affect your credit score for up to six years but once it drops off you can start to fix things.

Reduce how much of of your credit limit you use 

Try to use less than 50% of any credit limit on credit and store cards or overdrafts, because this suggests that you aren’t over stretched and are using credit responsibly. And don’t make out on one card to lower the use on others. The credit score will usually take into account the average outstanding balance against your average credit limit across all credit facilities. 

Make repayments on time and in full

Prove that you can sensibly manage credit by paying off any existing borrowing on time. This could be your mobile phone contract bill or your utilities, just ensure they are always accounted for to avoid defaults or missed payments. A Direct Debit, standing order or salary deduction can help with ensuring payments are always made on time.

Register to vote

Credit reference agencies use the electoral register to find public information on you and if your address is not up to date, your score will be lower. You can register to vote in just five minutes, via the Government website.

Look into financial disassociation

Joint debt means that you and someone else are financially linked and if their credit score is poor this can also have an effect on your ability to get credit. Technically, a financial link won’t affect your score but the lender could turn you down if the other person is in significant debt. If you no longer need to be linked to someone – say, if it’s an ex-partner – then look into financial disassociation. This means contacting the credit reference agency, filling out a form and asking for them to break the link between you and that person. They’ll then notify the other two main credit agencies.

Next, take a look at your credit score and...

Correct any mistakes on your credit report

If you don’t know what your credit score is, check your credit for free here. A small mistake can cost you when it comes to your score, so look to check that debt amounts listed are correct and that there are no duplicates or that they have the right personal information. If you spot any errors get them sorted straight away by contacting the credit agency you're using. That should update your file across the board.

Ensure there is no fraudulent activity on your report

Identity theft and fraud can quickly affect your credit score and so you need to ensure there is none of this on your report. If you spot any credit accounts that you did not open get in touch with the lender immediately and notify them. Then you should contact the credit reference agency you are using and also alert them to the fraudulent account – they will let the other two main credit reference agencies know too on your behalf. You should then notify the police and Action Fraud, as this will ensure it is logged.

You should also register for CIFAs, this is a service that helps prevent fraud and you can have something called a Protective Registration notice placed on your credit file. This will let future lenders know that you’ve been a victim so they can take this into account. Once you have raised the alarm the activity will be investigated and if it is fraud it will be removed, which will improve your credit rating again.

DON’T

Move home too often

Lenders prefer to see one address for a long length of time on your report, as it links to your credit products and provides proof of where you are permanently living. Sometimes we can’t help having to move but it’s something to bear in mind when you are looking to rebuild your credit score.

Apply for too many products at once

Lenders can see what credit applications you have made and a large amount of applications in a short space of time may ring some warning bells, suggesting that you desperately need credit or could even be making fraudulent applications.

Instead...

Start small

When it comes to rebuilding your credit rating, it’s important to start small. Applying for big credit products and risking rejections will have a big impact on your score, lowering it even more. Start with things like a very low limit credit card or a mobile phone contract to give yourself a better chance of being accepted and that you can pay off on time regularly, to prove that you can handle debt.

Take on credit if you have none to your name

Surprisingly, having no credit at all can actually lower your score. So if you have taken a look at your report and are surprised your score is low even though there is no debt on there it’s because lenders like to see proof that you can handle credit before agreeing to give you it. While we don't encourage taking on unnecessary debt, putting small and manageable amounts on a credit card that you can afford to pay off in full every month will show that you can responsibly manage money.