Understanding how to build up your credit score is important if you want to improve your chances of getting approved for credit.
Your credit score is a numbered rating that is given to you by credit agencies based on the information they have available on you. It allows them to judge your financial behaviour that will determine how much credit you can apply for and at what cost whether you’re looking for a mortgage, loan or credit card. It can take a long time to make improvements to your credit score.
How can I improve my credit score
If you have a low rating, there are a number of ways to start making improvements to it today.
- Register on the electoral roll – https://www.gov.uk/register-to-vote
You may find it challenging to be approved for credit without being registered on the electoral roll. Being registered does not mean you are required to actually vote. When registering, two things will happen. Firstly, you will become a registered voter for your address. Secondly, there will now be an official record you live at your address.
If you’re concerned about privacy, you can remove yourself from the open register. You’ll stay on the electoral roll, but you’ll prevent any thing parties buying your personal details.
- Check for mistake on your file
Any mistakes such as a slightly wrong address can have a negative impact on your credit score. There should be no difference between your credit file and the information you provide on a credit application.
- Paying your bills on time
By paying your phone or internet bills is a great way to prove to lenders you can manage your finances effectively
- Check for fraudulent activity
If you discover any activity on your credit file that you’re not responsible for, contact the credit reference agency immediately as someone could be fraudulently using your identity and building up debt in your name which you’ll be liable for.
- End any negative financial associations
If you have a joint account with another person in the last six months, your credit file will be linked to theirs. This is known as financial association. If your financial associate cannot meet payments in a timely manner, this will reflect negatively against your credit score.
To end the financial association, you will need to close all joint credit products you share with that person. You’ll also need to contact the credit reference agencies to add a notice of disassociation. This should prevent any of their future activity from having any impact on your credit score.
- Remove defaults, County Court Judgments or bankruptcies
If you’ve failed to make payments, usually over a 3 to 6 month period, a lender will likely close your account. This is known as a default. These are recorded on your credit report and will decrease your score and will remain there for six years.
In some instances where a missed payment has been made, the lender may bring a CCJ against you. If you pay what you owe within 30 days of the CCJ being issued, it shouldn’t appear on your credit file. If you don’t pay within 30 days, the CCJ will remain on your credit file for six years.
If you’ve had to declare yourself bankrupt, it can be very difficult to remove it from your credit file. With consistently good behaviour, you can try to reduce its impact, but you can’t remove it completely for 6 years.
- Apply for some credit
Without credit, it’s hard to prove you can manage your payments. A lender doesn’t have any evidence that you’re responsible with your money and can make your repayments.
- Remove high levels of existing debt
If you already have existing debt, ideally you should be eliminating this before applying for new credit. Banks and building societies will be hesitant about lending you more with a lot of existing debt.
- Keep your credit utilisation low
Your credit utilisation is how much of your available credit limit you use. For example, if you have a credit limit of £1,000 and you’ve used £500 of that, your credit utilisation is 50%, so you’re using half of your credit limit. Usually, using less of your available credit will be seen positively by lenders, and will increase your credit score as a result. If possible, try and keep your credit utilisation at 25% or lower.
- Avoid too many credit applications
Every time you make a credit application, it will leave a hard inquiry against your credit record. If you make too many applications in a short period of time, it can negatively impact your score. If you don’t have any credit yet, one or two inquiries won’t impact your credit score too much. They will disappear from your record after two years.
