Sam Bromley
Adam French
Wondering how to improve your credit score? The time it takes depends on where you’re starting from, but the good news is that it’s possible. By building up a good credit history, you should see your score improve.
A good score helps lenders see you’re a responsible borrower who manages their finances well. The better your credit score the more likely it is you’ll have access to the best loan rates, the best credit cards and the cheapest mortgage rates – plus other more affordable ways to borrow money.
Our guide is split into two sections – building your score if you’re just starting and how to increase your score from there. We also bust a few credit score myths and detail traps to avoid.
How to build a credit score: the foundations
1. Check how you’re doing
Before finding ways to improve your credit score, it’s important to understand where it is at first.
This is especially true if you want to apply for credit because your credit score helps you understand the likelihood of being approved.
It can’t tell you for sure which way your application will go, because each lender usually decides based on your credit history and what you tell it in your application.
But if your score’s not where you’d like it to be, you can check your full credit report to find out where you can make improvements.
You can check your credit score for free – be aware that you can also get a free statutory credit report directly from the credit reference agencies.
Myth: checking your credit score damages your credit file
You can check your credit score and credit report as many times as you like without damaging them.
When you check your own score and report, it’s recorded on your file as a soft search. Soft checks aren’t visible to lenders and don’t impact your ability to get credit in the future.
2. Take steps to build up your credit score
Maybe your credit score is low, or you don’t have a credit score at all. This could be because there isn’t enough information in your credit file to allow firms to check your identity and how you’ve managed credit in the past.
In this situation, it’s best to check your full credit report to find out if you have a ‘thin’ credit file.
Lenders like to see that:
- You’re on the electoral roll. Getting on the electoral roll by registering to vote helps lenders to confirm your name and address.
- Your full address history is present. Your previous addresses help lenders identify and link you with your previous financial behaviour. They also help to prevent fraud. If your address history looks wrong, you should contact the credit reference agency.
- You have an open bank account. Setting up a bank account and paying bills regularly from this account by direct debit can help build your credit file.
- You’re making payments on time. If you haven’t taken out credit before, you could build up your payment history by paying a mobile phone contract and utility bills in your name.
The steps above confirm your identity and show lenders you can reliably meet your financial obligations which is the foundation of building a good credit history.
Myth: previous occupants at your address affect your credit score
You should only be financially linked to people if you have shared finances, for example a joint current account or mortgage.
Your address history just helps lenders confirm your identity. If you apply for credit, the lender won’t factor how previous occupants managed their finances into its decision.
» MORE: What is a credit score?
3. Take out a small form of credit
It can be frustrating if you want credit but think you’ll be refused because of a limited or poor credit history.
However, you might find it easier to be approved for certain products, including:
While these usually come with higher interest rates and lower credit limits, they can help you build a history of making payments on time.
Just make sure that you can afford to make the repayments, factoring them into your budget, and don’t spend more than you need. If you can’t make at least the minimum repayments, you’ll fall into debt, likely harming your credit score.
With credit cards, it’s best to clear the balance in full each month to avoid high interest payments and a large debt building up. If you think you’ll overspend, it’s probably a good idea to avoid getting a credit card.
» MORE: Does an overdraft affect your credit score?
Trap: don’t use more credit than needed
Credit cards come with a maximum amount you can spend, known as a credit limit. Even though this amount is available, it’s important to avoid spending more than needed.
When applying for credit the lender will usually look at how much of your total available credit you’re using, across all of your credit cards – this is called your credit utilisation ratio.
A high credit utilisation ratio can indicate that you’re too reliant on credit and it can damage your score. On the other hand, a low credit utilisation ratio can signal that you’re in a good financial position because you have available credit that you’re not using.
How to improve a credit score: the next steps
1. Manage your credit accounts well
Lenders usually check your credit history to understand if you have a record of making repayments.
The lender can look at how well you have managed your past borrowing with a credit check, which often factors into its decision. Because your score is a reflection of your credit history, managing your accounts well can lead to a good credit score. This includes:
- Making payments on time. If you miss a payment and fall behind on an account, it knocks your credit score. But when you build a history of paying on time, your credit score should improve.
- Paying more than the minimum. A low credit card balance can improve your credit score, while balances that are nearly at the credit limit can decrease your score. Being able to clear your balance in full each month can show that your overall financial situation is healthy.
- Keeping credit utilisation and balances low. Credit utilisation is how much of your total available credit you’re using. If you only have one credit card that has a £1200 credit limit and a £600 balance, your credit utilisation is 50%. Many experts recommend that you try to keep your overall credit utilisation below 25%.
- Maintaining accounts over the long term. Keeping accounts open and well managed for several years can benefit your credit score.
2. Limit applications for new credit
Credit checks come in two forms – ‘hard’ and ‘soft’.
- A hard search involves a full check of your credit history. The lender usually does this once you’ve submitted your application. Hard searches are recorded on your file, are visible to other firms and can stay on your report for up to two years. Too many hard searches in a short time can damage your score, because it may indicate that you need credit urgently.
- A soft search looks at the data in your report, but isn’t visible to other firms – only you can see it.
It’s best to use eligibility checkers when researching your options for credit because they generally use soft searches to match you to products you’re more likely to be approved for. However, checking your eligibility is just a guide – the lender’s final decision comes once you submit your application.
Myth: credit refusal damages your credit score
While a hard credit check may lower your score regardless of whether your application is successful or not, the outcome of the application isn’t recorded on your report.
What lenders look for is whether you’ve made lots of applications for credit in a short time, because this can indicate that you’re struggling financially.
3. Look out for mistakes on your credit report
Given that missed payments, hard searches and credit utilisation all impact your credit score, it’s important to keep an eye on your credit report for errors and mistakes.
If you think you’ve made a payment on time but it’s been recorded as missed, you can dispute it with the financial firm involved and credit reference agencies.
To tell a credit reference agency about a mistake, you raise a ‘notice of dispute’ – it’s free and you can do it online.
Checking your credit report regularly also helps you spot identity fraud. You can act quickly if you notice something suspicious, such as a hard search you don’t recognise or even an account that’s been opened in your name.
Trap: don’t obsess over your credit score
Your credit score only indicates the likelihood of being accepted for particular products, and whether you could receive favourable interest rates.
There’s no one universal credit score. Lenders and credit reference agencies all calculate it differently. While one lender may reject your application, another could accept it.
Checking your credit score is a useful way of understanding how a lender may view your application – but don’t be too concerned about small changes.
If there’s a change in your credit score that does look concerning though, like a big drop, check your full credit report to investigate what’s happened.
Give your credit score time to improve
Depending on where you’re starting from, it can take time for your credit score to improve – and that’s OK. The key is to stay motivated, keep up with your repayments, make sure that you limit your applications for new credit and don’t take out more than you can afford to repay.
Information about your accounts generally stays on your credit report for up to six years. This includes missed payments, defaults and court judgments. If you’ve missed payments or have been in arrears, you could see an improvement in your credit score after several months of making payments on time.
This may seem like a long time, but it’s positive that information doesn’t stay on your report forever. If you’ve struggled with making payments in the past, your credit file should eventually recover along with your score, as long as you continue to manage your accounts well.
Myth: there’s a credit blacklist
People who have regularly missed payments, defaulted or received county court judgments (CCJs) sometimes think they could be on a credit ‘blacklist’ – but this doesn’t exist.
While your credit history usually factors into a lender’s decision about whether to accept your application, there’s no list that leads to an automatic rejection.
Struggling with debt? Here’s who can help
If you’re in financial difficulty and are finding it difficult to keep up with your repayments, free debt advice charities can help. It’s probably best to speak to them first before taking out further credit. These charities include:
These charities can help with things like budgeting and creating a plan to deal with your debt. They could also help you apply for debt respite schemes such as the ‘Breathing Space’ scheme in England and Wales and the Debt Arrangement scheme in Scotland. There isn’t currently an equivalent scheme in Northern Ireland.
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