Why should I improve my credit score?
When you apply for credit, the company will calculate your credit score to decide whether to lend to you. It’s usually based on:
- Information from your credit report
- Your application details
- Data they already hold on you, if you’ve been their customer before
Each company may have a different way of calculating your credit score, depending on what information they have access to and their lending criteria.
Credit reference agencies (CRAs) like Experian also calculate their own versions of your credit score. You can get an idea of how companies may view you by looking at your free Experian Credit Score. And don’t worry, checking your score won’t affect it.
How can improving my credit score benefit me?
A higher credit score means companies see you as a lower risk, so you’re more likely to be approved for credit. This is because a high score indicates you have a history of managing your credit sensibly and making repayments on time.
The benefits of improving your score may include:
- Lower interest rates. If companies think you’re lower risk, they may offer you better interest rates on loans and credit cards, which can make borrowing cheaper.
- Higher credit limits. If you improve your score, you should have a better chance of borrowing larger amounts. This could help you achieve goals faster, such as buying a new car or making home improvements.
- Access to more offers. Whether it's a loan, credit card or mortgage you’re after, a higher credit score means you’ll have better chances of approval – so you may be able to choose from a wider range of credit offers and providers.
How long does it take to improve your credit score?
It depends on a number of things, but you should know it won’t happen overnight. Information about things like your new bank account or credit card can take up to three months to reach us, so it may take at least this long to see real improvements to your score.
4 tips to improve your credit score
- Prove where you live. Register on the electoral roll at your current address – you can do this even if you’re in shared accommodation or living at home with your parents.
- Build your credit history. Having little or no credit history can make it difficult for companies to assess you, and your credit score may be lower as a result. This is a common problem for young people and people who are new to the country. Luckily, there are some steps you may be able to take to build up your credit history.
- Make payments reliably. Paying your accounts on time and in full each month is a good way to show lenders you’re a reliable borrower, and capable of handling credit responsibly. Old, well-managed accounts will usually improve your score – although be sure to read about the potential impact of unused credit cards.
- Keep your credit utilisation low. Your credit utilisation is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%. Usually, a lower percentage will be seen positively by companies, and will increase your score as a result. If possible, try and keep your credit utilisation at 25%.
5 tips to keep your credit score healthy
- Limit credit applications. Applying for credit frequently in a short space of time can make lenders think you’re overly reliant on credit and therefore a higher risk. It doesn’t matter what form of credit you apply for, or how much you’re asking to borrow – each application will record a hard search on your report which companies can see. So, try to space out any credit applications – a good rule of thumb is no more than one every three months, but remember lenders’ criteria can vary.
- Consider closing unused accounts. Having a large amount of available credit may make lenders think you can’t handle more. So, you may want to close any dormant credit accounts. Read more about deciding what to do with unused credit cards.
- Avoid delinquent and defaulted accounts. Delinquent accounts happen when you're late on payments, and defaulted accounts are when your relationship with the company has broken down, usually because several missed payments. Both will harm your credit score.
- Only borrow what you can afford. Getting into trouble with debt may lead to things like County Court Judgements (CCJ), an Individual Voluntary Agreements (IVA) or even bankruptcy. These things will stay on your credit report for up to six years and will put a big dent in your credit score.
- Keep an eye out for fraudsters. Keeping a close eye on your credit report and looking out for any signs of fraudulent activity could help protect your credit score. If you see a surge in the amount you owe, or any applications you didn’t make, you may be a fraud victim. Note that if you do become a victim of fraud, your lenders should fix any damage to your score quickly.