Now is a good time to review your finances and set yourself up for the year ahead.
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 23 simple ways you can build your credit score, to become more attractive to lenders.
Setting up direct debits for each of your bills will ensure that you never forget to make a payment. Making payments on time will prevent any late fees or negative markers on your credit report.
If you miss three to six payments, a default may be registered on your credit report, which could knock your score by a whopping 350 points. And if you still don’t pay, then the lender could take legal action. A County Court Judgement (CCJ) could cost you a further 250 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 higher 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.
If you don’t want to set up direct debits, then you could set recurring reminders on your computer or phone instead.
Tip: If you can manage to pay more than the minimum each month towards your debts, you will clear your outstanding balances sooner.
It’s best to try and keep your credit card spending to 25% 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 total credit limit across all your credit cards 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 combined credit card limit of £2,000 - to work out 25% of £2,000, you need to divide £2,000 by four, which equals £500.
There are many ways to reduce your debts, such as:
Be aware that any short 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.
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 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.
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.
Signing up to the electoral roll is quick and easy - 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. If you don't meet the criteria needed to be on the electoral roll, you can add a note to your credit report to explain to lenders why you're unable to register, and that you have the necessary documents available if and when required.
Experian Boost is a 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 to your current account via Open Banking. It only takes around five minutes to set up, and any changes to your score should be instant.
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:
You’ll need to provide the following information:
• personal details
• tenancy details
• online banking details
Note: CreditLadder and Canopy also offer paid plans – which cost £5 per month and £4.99 per month, respectively.
If you have a low credit score, another option may be to get a credit building credit card (or credit card for bad credit). By maintaining your repayments on time, every time, and staying within your credit limit, 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.
If you have a ‘thin’ credit history, you could consider getting a small form of credit. If you make repayments on time, stay within any agreed limit and stick to the terms of any agreement you make, your payment history should be reported to credit reference agencies, which will give future lenders an idea of how you manage credit.
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 uses a soft search tool that won’t be visible to lenders or affect your credit score.
Keeping an old account with a good payment record open can boost your credit score. 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.
However, you need to avoid the temptation to spend if you have access to lots of credit. If you think it would be too tempting, it might be worth closing one or more credit cards. Getting into financial difficulty is likely to damage your credit score and ability to access credit in the future.
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) through CredAbility, which is powered by Equifax.
Benefits of monitoring your report include:
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.
Read on to find out how to remove something bad from your credit history.
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):
If you’ve been a victim of fraud, make sure you report it to Action Fraud, to help prevent it from happening again.
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 lender to ask them to update your records as soon as possible.
You could also get in touch with the relevant credit reference agency to ask them to put a ‘Notice of Correction’ on your credit report, whilst the lender looks into the matter. This is essentially a short statement that shows you’re disputing something that doesn’t look right on your report.
Mistakes to look out for include:
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. Not doing this could mean that you don’t receive all communications about your credit accounts.
When proving stability, little things can go a long way. Even something as simple as adding a landline instead of a mobile number to your credit application may help.
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 or 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.
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.
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.
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.
The type of borrowing you have in your name can also affect 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 are 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.
We understand how difficult times are at the moment, and it can be all too tempting to take out a payment holiday to allow yourself more time. Whilst payment holidays can be a great solution in the short term, it's worth noting that it's likely to have a significant impact on your credit report and will have an effect on your future eligibility as well. It also means you're extending the terms of your payments, so try to avoid this route wherever possible.
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. These figures are sourced from Debt Camel and are estimates only. Points vary depending on individual circumstances.
Disclaimer: We make every effort to ensure that content is correct at the time of publication. Please note that information published on this website does not constitute financial advice, and we aren’t responsible for the content of any external sites.
Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.
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