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Improve Your Credit Score

Your credit score is something that you build up over your lifetime, and it changes over time depending on actions that you take relating to credit (so, for example, whether you make all your monthly credit card or loan repayments on time, etc). If you have a low or poor credit score, it can affect you in many ways.

This guide will provide you with details about credit scores along with some useful ways that you can improve your score, both immediately and in the long term.

Who decides what my credit score is?

As soon as you take out any form of credit, from a mobile phone contract to a credit card; from a personal loan to a bank account, then you start building up a credit file.

Your credit file details how you manage your debts. So, each and every debt you have and each and every payment you make (or miss) will be shown on your file, typically for up to six years.

When you apply for credit, lenders will look at your credit file and see what your current financial position is (eg. do you have a lot of debt?) as well as how “good” you are at meeting your monthly commitments.

So, someone who has a small amount of debt and has met all their repayments on time for the last six years will be rated a better risk than someone with lots of debt (which smacks of financial desperation) and who falls in to arrears with their repayments.

Your credit file will also show if you have any county court judgments, debt management agreements or have been made bankrupt.

It is also important to note that every time a credit check is carried out on your file, it is logged on your records – even if you decide not to take the credit or your application gets rejected. Lots of credit applications on your file can be a warning flag to potential lenders as it looks like you are financially desperate.

Why is a good credit score important?

Your credit score plays a large role in the decisions of lenders when you apply for credit. You may want to borrow money for all kinds of reasons, and if you have a less than perfect credit score, this is a factor – although not the only one – that can work against you and prevent the lender from deciding to provide you with a loan.

Even if the lender agrees to provide you with credit, you may find that you are charged a higher interest rate as a result of your low credit score. This is because you are seen as more of a risk than someone who, historically, has always paid their bills in a timely manner.

How can a poor credit score affect you?

If you have a bad credit score:

  • you may be rejected when you apply for a credit card or loan;
  • you may not be able to get a mortgage or a remortgage;
  • energy companies may ask for a security deposit or demand that you use a prepay meter;
  • you may have difficulty applying for car finance;
  • mobile phone operators may turn you down when you ask for a contract.
Find out your credit score

Many people only find out that they have a low credit score when they make an application for credit or a mobile phone contract and are refused. If this happens to you, it may be worth checking your score. However, it is a good idea to check it even if you have not been rejected for credit so you know in advance of any potential problems.

There are two main credit agencies that are used by creditors: Experian and Equifax. Go to one of these and check your score with them. This may involve paying a small fee, but you will then know what your score is.

When you do this, look out for mistakes. Sometimes your credit score may be affected by a mistake that is not your fault at all and this can be hindering your chances of getting access to credit. If something looks strange, alert the credit agency and find out what is going wrong so that you can start the process of rectifying the error.

Your credit file may not be showing a true picture of your finances because:

  • a debt that you have paid off may still be showing as unpaid on your file;
  • someone who previously lived at your address had a poor credit history and they are still showing on your file as living there. In that way, you would look to be associated with them, and so their credit history would influence the lender too;
  • someone has stolen your identity (more on this further down); etc.
Immediate ways to improve your credit score

Once your credit file is up to date, there are many steps that you can take to further improve your credit score. Here is a list of the main ones that you can consider:

  • first of all, ensure that you are registered on the electoral role at your current address. This is a nice easy one to start with and it can make an immediate difference to your credit score. You can find out more about doing this by visiting this page on the Gov.uk website;
  • next, make sure that all of your financial commitments are registered to this same address. This means all of your credit cards, bank accounts, phone contracts and any other loans that you have. Even something as simple as this can make a difference;
  • you can then go through all of your accounts and close any that you are not using. For example, if you have credit cards or store cards that you never use, make sure you close them. Your credit score is affected by the total amount of credit you have access to, not just the credit that you are using, so it is sensible to get rid of what you do not use;
  • if you have been applying for credit in different places with no luck, stop immediately. Applying for credit from many different places in a short period of time can suggest that you are desperate, and this can also have a negative impact on your score. This does not just relate to loans and credit cards but also to mobile phone contracts;
  • if you do need finance, then using the services of a broker may be sensible, as they will carry out a credit score on you and match you to a lender who is the most likely to accept your application. This saves multiple applications and multiple credit checks being shown on your file;
  • if you keep getting turned down, it is usually best to stop applying for any credit at all until you have improved your credit score. You may also want to get some advice about debt from Citizens Advice and visit MoneySavingAdvice.
Longer term ways to improve your credit score

The above ways can make an immediate difference to your score, but there are other ways that you can improve your score over the long term. Some of these include the following:

  • you may want to get a prepaid card or special credit card that is designed for people with low credit scores. You can then start using this on a regular basis to slowly build up your credit rating over the months ahead. The prepaid cards come with fees, and the credit-builder credit cards come with much higher interest rates. As long as you are careful about how you use them, they may be a good way to build your score;
  • sometimes you may have a low credit score simply because you have not had any access to credit. If this is your situation, you may want to apply for a credit card. You can then use this on a regular basis for small purchases and pay off the amount you owe at the end of each month. As the months go on, this can help to improve your score;
  • another way to improve your score if you have not had much access to credit in the past is to take out a mobile phone contract. Make sure you pay your bill in full every month, and this can slowly help to improve your credit rating;
  • if your score is low because you have had trouble paying off loans in the past, avoid this problem in the future by setting up all of your payments to be taken from your account by direct debit. This will help you to avoid missing payments in the future;
  • try to get into the habit of being a reliable borrower. This means only buying what you can afford and paying off everything on time from now on. Make an effort to do this, and over time your credit score should improve.
Identity theft: protect yourself and your credit score

There is another area where you should be careful when it comes to protecting your credit score and that is identity theft.

Sometimes people only find out that they have had their identities stolen because they apply for credit and get rejected. They then check their scores and realise something is very wrong. Identity thieves often use people's stolen identities to open accounts and get access to credit, and if you become a victim, this can easily hurt your score.

As well as keeping an eye on your credit score by checking it from time to time, be careful to prevent yourself becoming a victim. Some tips include:

  • be careful what information you put on your social media accounts (don’t give your birth date out, for example);
  • protect your online accounts with strong passwords;
  • be on the lookout for financial accounts you don't remember opening;
  • check your bank balance regularly and look out for odd transactions.

There is lots more information about identity theft at the NI Direct, ActionFraud and other websites.

Give your credit score a boost

If you have a low credit score for any reason, these tips can help you to improve it. Having a good credit score is so important for many reasons, so make sure you look after yours and take steps to improve it if necessary.

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