Now is a good a time to review your finances and set yourself up for the new year to come.
The sooner you start working on improving your credit score, the quicker you’ll see the benefits, from getting access to more competitive finance deals to finding it easier to buy a property.
We’ve found 21 simple ways you can build your credit score, to become more attractive to lenders.
1. Set up direct debits
Setting up direct debits for each of your bills will ensure that you never forget to make a payment. This will prevent any late fees or negative markers on your credit report. Missing just one payment (or paying less than the minimum amount) could knock your score by around 130 points.
If you miss three to six payments, a default may be registered on your credit report, which could knock your score by a further 250 points. And if you still don’t pay, then the lender could take legal action. A County Court Judgement (CCJ) could cost you a whooping 350 points.
These negative markers will stay on your credit report for six years and can make it very difficult for you to get approved for credit. If you are accepted, you’re likely to face high interest rates.
It shouldn’t take more than a morning or afternoon to get through, depending on how many companies you need to get in touch with. If there’s the option to update your details online, then this is the speediest way forwards.
2. Set yourself payment reminders
If you don’t want to set up direct debits, then you could set yourself recurring reminders on your computer or phone instead. Remember, if you can manage to pay more than the minimum each month, you will clear your debt sooner.
3. Reduce your debt
It’s best to try and keep your credit card spending to 30% or less of your available credit limit. This percentage is known as your credit utilisation ratio and it represents the difference between your balance and your credit limit across all your credit cards and overdrafts put together.
Sticking to this strategy will help to boost your credit score by around 90 points. It also shows lenders that you aren’t heavily reliant on credit to get by.
So, if for example, you have a £500 arranged overdraft and a credit card limit of £1,500, your total available credit is £2,000. To work out 30% of £2,000, you need to divide 600 by 2000 (equals 0.30) and multiply this by 100 (equals 30%).
There are many ways to reduce your debts, such as:
- Cancelling old direct debits that you didn’t know were still active
- Using some or all savings if you don’t want to keep them in case of an emergency
- Cutting back on non-essentials, then use spare cash towards debts
- Switching utility providers to get a better deal
- Boosting your income by selling old items online or taking surveys, for example
- Contacting a free debt advice organisation like StepChange or Citizen’s Advice
Be aware that any short-term or long-term reduced repayment plan will have a significant impact on your credit score. This is because paying less than your contractual payments is a breach of your credit agreement(s). So, setting up a debt payment plan is usually a last resort, designed for those who are in financial difficulty and can’t afford to maintain their repayments.
4. Pay at least the minimum repayment – or more if you can
Ideally, you want to try and pay off your credit card balance in full every month to boost your credit score and avoid interest. However, we know this isn’t always possible. So, you just need to make sure you stay within your credit limit and you are paying at least the minimum amount on your card. That way, you won’t incur any late fees and you’ll continue to chip away at your balance.
5. Create a budget
Creating a budget will help you to see where cutbacks can be made. Any savings can then go towards reducing your balances and boosting your credit score. Plus, if you can manage month-to-month without relying on credit, this will show lenders that you are a responsible borrower who can manage money well.
Read on to find out how to create a budget in 6 simple steps.
6. Register to vote
Signing up to the electoral roll is quick and easy way and can boost your credit score by around 50 points. It only takes five minutes to register online, (or you can apply via the post if you prefer).
Lenders use the information on the electoral roll to confirm your identity, as it shows you are who you say you are. If you aren’t on there, it could cause complications and delays with your credit application.
You need to be a UK citizen (or an Irish, EU or Commonwealth citizen with a permanent UK address). If you aren’t a UK citizen, you can send proof of your address (such as a UK driving license or utility bills) to the three main credit reference agencies and ask them to update your report to show that you have provided evidence.
7. Join Experian Boost
Experian Boost is a new free tool designed to help you build your credit history by taking previously unreported bills such as entertainment subscriptions and council tax into account.
It sweeps your payment history over the previous 12 months to see how well you’ve managed your money. If you’ve been maintaining your bill repayments, then your Experian credit score may get a boost of up to 66 points.
To get started, you’ll need to give your consent to connect Experian Boost up to your current account via Opening Banking. It only takes around five minutes to set up, and any changes to your score should be instant.
8. Sign up to the Rental Exchange Initiative
Rent isn’t normally considered by credit reference agencies or lenders when they’re assessing your credit score. This is a shame if you always pay your rent on time.
To get around this issue, you could look into joining the Rental Exchange Initiative to showcase how well you manage your finances. By doing so, you could boost your credit history with Experian - making you more attractive to lenders. Remember, any missed payments will have a negative impact.
The scheme is open to all tenants, whether social or private and it’s free to join. To get started, you’ll need to either:
- Speak to your landlord and ask them to report your rental payments to the scheme
- Use CreditLadder or Canopy to report your payments directly
You’ll need to provide the following information:
• Personal details
• Tenancy details
• Online banking details
9. Consider getting a credit-building card
If you have a low credit score, another option may be to get a credit-building card (or ‘bad credit’ credit card). By maintaining your repayments on time, every time, your score should gradually improve.
Be aware, these types of credit cards usually come with higher interest rates and lower credit limits compared to mainstream cards. This helps lenders to offset the risk involved in lending to someone with poor credit.
10. Space out credit applications
Remember not to make too many credit applications within a short space of time. Each application you make will be recorded on your credit file for lenders to see – whether you are accepted or not.
If you make lots of applications at once, this can give lenders the impression that you are desperate for cash, even if you aren’t. This can ring alarm bells, as they won’t want to lend to someone who appears to be in financial difficulty.
Each application you make will cause a temporary dip in your credit score, which could also lower your chances of approval.
Tip: Use an eligibility checker to find out the likelihood of being accepted for credit before you apply. Unlike a formal application, this tool won’t be visible to lenders or affect your credit score.
11. Keep long-held credit cards open
Keeping an old account with a good payment record open can boost your chances of getting approved. Whereas closing an account would reduce the gap between your outstanding balance and your available credit limit. In turn, your credit utilisation ratio would go up, which could damage your credit score.
In short, the nearer you appear to be to maxing out your overall credit limit, the lower your credit score may be – and the riskier you’ll appear to lenders.
12. Regularly monitor your credit report
You can quickly check your credit report for free online via the three main credit reference agencies in the UK: Experian, Equifax and TransUnion. You can also check it for free (for life) using CredAbility, who work in partnership with Equifax.
Benefits of monitoring your report include:
- Being able to spot and fix any errors quickly - before they cause too much damage to your credit score
- Having sight of any fraudulent activity – such as spending on accounts that you don’t recognise that could bring your score down
The act of checking your report won’t hurt your score, as only a soft search will be performed (which lenders won’t be able to see). So, you can review it as many times as you like.
13. Be vigilant against scams
Any fraudulent activity such as Facebook scams and identity fraud can damage your credit score. For example, if someone steals your personal details, they could go on a shopping spree and rack up lots of debt in your name. So, it’s best to always remain vigilant.
Tell-tale signs of a scam can include (but aren’t limited to):
- Bad spelling and grammar on correspondence
- Being asked to pay an admin fee upfront before you can claim a prize
- Receiving communication out of the blue from someone you don’t know
- Hearing from a company that isn’t registered on Companies House
- Being offered a prize that seems too good to be true
14. Fix mistakes on your report
Mis-matched or incorrect information can show as red flags to lenders who want to confirm your identity when you apply for credit. Plus, things like incorrect negative markers could be unfairly dragging your score down. So, if you notice any errors, you should get in touch with the relevant credit reference agency (and/or lender) to ask them to update your records as soon as possible.
Mistakes to look out for include:
- Incorrect personal details (like misspellings of your name, for example)
- Negative markers (like defaults) that were registered over six years ago
- Accounts that aren’t in your name
- Duplicate accounts
- Incorrect late payment markers
- Closed accounts that are showing as still open
15. Check your address on older accounts
Having correct and up-to-date information across the board will show lenders that you are reliable and trustworthy. So, as well as checking that the credit reference agencies have your up-to-date personal details, you also need to make sure that your lenders hold the correct data too. This includes details such as your address if you have moved to a new house.
16. Add a landline
When proving stability, the little things go a long way. Even something as simple as adding a landline to your personal details can help.
17. Become an authorised user
If you have a ‘thin’ credit file, due to not having taken out credit in the past, it may be worth asking someone you know and trust (like a close friend of family member) if you can become an authorised user on their credit card. This may help you to build a credit score.
Bear in mind that this will only work in your favour if the primary cardholder has a good credit score to begin with and you each use the card responsibly. You are not legally responsible for paying the debt (the primary cardholder is), but any missed payments will have a negative impact on you both.
18. Add your name to bills
If you have a thin credit history and want to bulk it out to improve your score, you could get your name added to household bills. Your name doesn’t need to be on every bill, but if it’s not on any then lenders won’t be able to keep track of your payment history. This means even if you are paying on time, every time, it won’t count towards your credit score unless you get your name added.
Be aware though, that adding your name to bills will tie you to anyone else who is also on the account. If they have a poor credit history, it could make you appear risky to lenders, by association.
19. Remove old financial ties
As old financial ties with bad credit can bring your creditworthiness into question, you may wish to remove them from your credit file. You can do so for free by requesting a ‘notice of disassociation’ from the three main credit reference agencies. Just make sure the account is closed first, otherwise they won’t be able to process your request.
20. Pay insurance monthly
You could also increase your credit score by paying for your car insurance on a monthly basis instead of annually. This isn’t always the right option for everybody, so you need to weigh up the pros and cons first. For instance, it usually works out cheaper to pay for insurance as a lump sum payment instead of monthly.
Plus, when you pay insurance on a monthly basis, it is classed as a form of credit, as you pay back the company over time. This means it can cause a temporary dip in your credit score, as the provider will carry out a hard check on your credit file when you apply. If you make multiple credit applications within a short space of time, this can further impact your score.
21. Have a responsible credit mix
The type of borrowing you have in your name can also have an impact your credit score. For instance, if you have a mixture of revolving credit (such as credit cards and overdrafts) alongside instalment loans this could boost your score – if you always pay on time. This can show lenders that you capable of managing different types of borrowing. This may give them more confidence to lend to you, as you may come across as a reliable borrower.
Be aware though, you should only apply for credit if you need it and you can afford the repayments. A good credit mix can boost your credit score - but only having one or two types of credit to your name shouldn’t damage it.
Read on to find out how long it’ll take for these quick changes to make an impact on your credit score.
Please note that the points quoted in this blog use Experian’s points system and are estimates only. Points vary depending on individual circumstances.
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