How to improve your credit score

Home › Budgeting › How to improve credit score

Your credit score gives you an idea of how lenders and institutions view your financial health. It’s a three digit number that indicates how good you are at borrowing and repaying money. Whenever you need to borrow money from a bank, they will look at your credit worthiness and use it to determine if you are eligible for loans and what amount they’re willing to give you, so it’s useful to know how to improve your credit score.

Why does a credit score matter?

A low score may make it tricky to borrow money or get approved for credit, which is why it’s important to increase your credit score. Having a high score can unlock financial opportunities, as you will be offered credit cards and loans with more favourable terms and interest rates. 

Here are some solid reasons why good credit matters:

  • You may be granted lower interest rates
  • You can get access to favourable credit cards
  • You can enjoy a generous credit rate
  • It can open up better mortgage and rental agreements

What impacts my credit score?

As your credit score informs lenders as to how you have managed loans in the past, your previous dealings with money will have an impact. If you have a history of paying your bills on time, you may have a good score. If you have a history of missing or making late payments, this could negatively impact your score. Having no history of credit can also affect your score as lenders won’t have the information they need to make a risk assessment. 

Here are a few things that can affect your credit score:

  • How much you owe
  • Your payment history
  • Your length of credit history
  • Number of credit applications
  • Different kinds of credit you hold

What is a good and a bad credit score?

A high credit score will make you seem like a less risky lender. A low score may make it more complex to get approved for loans and credit cards. Your credit score is normally marked between 0-999, although this does vary depending on which credit reference agency you choose. 

This example from Experian can help you to break it down:

  • 0 – 560 = Very Poor

  • 561 – 720 = Poor

  • 721 – 880 = Fair

  • 881 – 960 = Good

  • 961 – 999 = Excellent

How do I improve my credit score?

It can be daunting to have a low credit score, but it isn’t set in stone. There are things you can do to help those numbers climb. Whether you’re looking to build your score from scratch or if you’re seeking to clean up a poor score, these tips can help you get on the right track.

1. Get your credit report

It helps to know what is working for you when it comes to your credit score. Asking for your credit report can provide vital information. You can ask for your credit report once a year (usually without cost) from any of the big credit agencies, such as Experian, Equifax or Transunion. It is also beneficial to ask for your report from more than one provider so you can cross reference them. This way you can see what’s hurting and what’s helping your credit. 

2. Pay on time

One of the most important things you can do to raise your credit score is to make sure you pay your bills on time. Payment history is one of the largest contributing factors to your credit score, so paying your debts and bills on time is a surefire way to boost your numbers. 

A late bill payment can stay on your credit record for up to seven years. If you can automate credit card payments or set calendar reminders or make a budgeting plan – this can all help you to get a handle on timely payments.

3. Consolidate debts

If you do have debts and black spots on your credit report, it may be worth consolidating your debt. By paying off a number of outstanding debts with a loan, you only have one debt to deal with. If you take this route, make sure that you shop around for the most competitive interest rates as this will give you more chance of paying your debt off earlier. The quicker you can reduce debt, the quicker your credit score can improve.

4. Build your file

You may think that never being in debt would give you a good credit score, but a thin file can also be a hindrance. If you don’t have enough credit history, you won’t generate a score. 

There are ways to build up your credit file, for example, you can apply for Experian Boost which collects data such as utility payments and banking. As long as you have enjoyed a healthy bank account and paid your bills on time, this could help to fill in some gaps. You can also look at opening new accounts with secured cards or taking out credit-builder loans. Being an authorised user on a friend or family member’s credit card can also boost your file.

5. Limit new accounts

This can be tricky as you may need to apply for new accounts to build your file. However, it’s important not to submit too many applications to lenders as this can be considered a ‘hard inquiry’ and knock down your credit score. 

A ‘soft inquiry’ won’t affect your score (this can include checks from financial institutions you already do business with and credit card companies who may want to give you pre-approved credit). The occasional hard inquiry or application shouldn’t cause too much of a difference to your score, but many of them in a short amount of time is likely to have an impact. 

For many people, there are some easy ways to improve your credit score. Bear in mind that raising your credit score can take weeks, or even months, to see a positive impact, but persistence is key. From paying off your debts as quickly as possible to limiting credit applications and positively building your file, by following these tips you can help to raise your credit score and enjoy a wider range of financial opportunities.