How to improve your credit score

What is a bad credit score?

Your credit score is a three-digit number calculated by a credit reference agency.

It’s a good guide as to how much of a risk you may be considered by lenders.

The higher your score, the better your credit report and so the more attractive you’ll be to lend to, because you’re seen as financially reliable.

A low, or poor, credit score will mean that your credit report will contain information that will be considered a red flag to lenders – and so you may find your applications for credit are limited or declined.

Confusingly, each credit reference agency (CRA) uses a different numerical scale to score you.

For example Experian provides a score from 0-999 and considers a 'good' score to be between 881-960 and a ‘poor' score between 561-720.

Equifax score levels run from 0-1,000. They rate a score of 0-438 as ‘poor’ and 531 to 670 as ‘good’.

TransUnion’s credit score only goes up to 710. A ‘poor’ score is 551-565 and a ‘good’ score 604-627.

How do I check my credit score?

It’s a good idea to check your credit score regularly, especially if you’re planning on applying for credit. It can give you an idea of how likely you are to be approved.

Checking your credit score – no matter how many times – won’t affect your score.

If your credit score is poor you might want to take steps to improve it before you apply for credit.

Too many applications can adversely affect your score.

As well as knowing your credit score, getting hold of your credit report from one or all of the CRAs is really useful too.

You can check for factual errors, challenge them (either with the finance provider or CRA) and get them corrected. This can boost your score.

And you may even spot signs of identity theft early – where a fraudster has taken out a loan in your name, for example – if you review your report regularly.

You can request a free statutory copy of your credit report from all UK credit reference agencies.

If you want to monitor your credit report regularly, you can sign up to an online service.

Experian

Register on the Experian website for free access to your credit score.

You can monitor your full Experian Credit Report by signing up to CreditExpert. They offer 30 days for free, then it’s £14.99 a month for full access to your report along with personalised tips on how to improve your score.

Equifax

Monitor your credit report and score on the Equifax website.

Your first 30 days are free then it’s £7.95 per month.

TransUnion

You can get a free one-off Statutory Credit Report from the TransUnion website.

Through the Credit Karma website you get free access to your TransUnion credit report and score.

They make money if you take up any of the personalised card and loan offers you’re eligible for.

Other companies which give you access to your credit scores and reports include checkmyfile.com, which provides data from all three of the main CRAs. It’s free for 30 days, then £14.99 a month afterwards.

Clearscore gives you completely free access to your Equifax credit score and reports.

They make their money if you take up any of the personalised credit deals they suggest for you.

With no credit history, lenders can’t judge whether or not you’re a good bet to lend to. So, you may be refused credit, even when you can comfortably afford to repay.

You could take out a ‘credit builder’ card to build up a personal credit history. This type of card tends to have very high interest rates, though – so be sure you pay back the full amount you borrow every month or you’ll get stung.

The Experian Boost tool from Experian can help people with no credit history.

It’s a tool that connects to your current account and scans it for payments and subscriptions that can boost your credit score.

Regular payments into investments and savings, such as ISA and monthly saver accounts, Council Tax and even digital subscriptions such as Netflix and Spotify can all indicate that you manage your money well and so can go towards boosting your credit score.

Cut financial associations

If you have a financial association – such as a joint mortgage or loan – with someone who has a bad credit history, it will affect your credit file and score too. If you no longer share finances with someone, you can let each of the CRAs know and ask for them to be removed from your credit report.

Why is it important to have a good credit score?

A higher score usually makes you more attractive to a lender and therefore more likely to be approved for credit when you need it.

What’s more, the better your credit score, the more access you should get to a wider range of financial products – with more generous limits and the best possible interest rates.

How long does it take to improve your credit score?

It depends on how poor your credit history is.

Serious issues like unpaid debts, CCJs and bankruptcies stay on your credit file for six years.

But if you have just had one slip up, and have quickly rectified it, your score should go back up within a few months.

Even taking out a new line of credit can cause your score to drop. But as long as you keep up repayments, your score should rise again within three months.

What can make my credit score go down?

Any default on credit payments can make your credit score drop.

And try to avoid making repeated applications for credit in a short space of time.

With every application you make, the lender will perform a ‘hard’ search on your credit history. This leaves a footprint on your credit report.

If you make a lot of rejected applications in a short space of time, lenders might see it as a sign that you’re financially struggling and it can affect your credit score.

Instead, run an eligibility check before you apply for any type of credit. This only requires a ‘soft’ credit search that lenders won’t see on your file and so won’t adversely affect your credit score.