How to improve your credit rating

Everyone over 18 in the UK has a credit rating. This is provided in the form of a ‘credit score’, which is based on how well you have managed other financial commitments in the past such as paying credit cards and loans. The score is supposed to give an indication of your creditworthiness and lenders use this information when deciding whether or not to grant a loan to someone.

If you have a habit of failing behind on bills and payment, your credit score will typically be lower as a result. However, credit ratings are only temporary and your score can always improve depending on how well you manage your finances.

If you have a better credit rating, it will improve your chances of being accepted for loans, credit cards and mortgages and impact the amount you are able to borrow. Those with good credit may also get access to better rates as lenders consider them a lower risk to lend to. So it is important to always think about how you can improve or maintain a good credit rating, as listed below:

Join the electoral roll

By adding yourself to the electoral roll, you are officially confirming your name and address with local authorities. This will instantly increase your credit score because it proves that you are a real person with a real address.

When creditors are underwriting a loan or credit card application, it is a big trust signal if the person is a registered UK citizen at a proper address rather than a person with no background information at all. Hence, it improves your credit rating.

Avoid applying for too many loans

Those looking for finance should avoid applying for too many loans in a short space of time. This is because every time you apply for a short term loan or payday loan, the lender will run a credit check on your account leaving a mark on your credit file known as a ‘footprint’ as a record of their search.

A footprint typically stays on the applicant’s credit file for around 12 months. If you make a lot of loan enquiries in a short space of time, any future lenders that run a check on your account will be able to see them and it will raise warning signs because it will look like you have been desperate for money. For more information, read here.

Pay your bills on time

Paying any credit card bills and loan repayments on time is essential to maintain a good credit rating.

If you fall behind on payments, the lender or credit provider will automatically send the information that you defaulted to all credit reference agencies including Experian, Equifax or Call Credit. So failing to meet repayments will leave a negative note on your file and cause your credit rating to fall.

However, if you repay your loans and debts on time, the information will also be sent to a credit reference agency to update your file. So repaying things like payday loans on time can actually improve your credit rating. Borrowers can also use specific ‘credit builder credit cards’ that are specifically designed to help you build up your credit score.

Consider the financial link with your partner

If you take out a joint mortgage or bank account, you will become financially linked to the person that you have taken it out with, such as a spouse or partner. This has negative implications on your credit rating if your partner has a bad credit score or starts to miss repayments. So if there is a notable difference between your credit ratings, you may wish to avoid sharing bank accounts and going solo.

Close the accounts of any unused cards

When carrying out a credit check, underwriters will get an indication of how many cards you have open. Naturally, the more cards you have open and debt owed, the more dependent it makes you seem on credit, which is not going to help your rating.

So it is recommended to go through all of your credit cards, store cards, direct debits and even phone contracts and simply close any of those that you don’t use often or that have very small credit limits on them.

Finally, check your file regularly

There are several companies and credit reference agencies that let you check your own credit file. Whether you use a free trial or pay a few pounds per month, you are able to see your score and what is affecting it. So if you are actively using credit cards and loans and trying to improve your score, you will be able to see the impact it is having.

Furthermore, by having access to your credit file, you will also be notified of any fraudulent activity in your name so you can notify your bank or the police and avoid any potential damage to your score.