Updated: November 19, 2023 Author: Paul Gillooly
Key takeaways:
- Register as a voter on the electoral register
- Check your credit report for potential errors
- Pay off an existing debt
- Close unused accounts
How can I quickly improve my credit score?
If you have a bad credit score, you’ll probably understand how difficult it can be to apply for credit of any kind. It can be a distressing time if you have suffered from a poor credit history for some time, failing to qualify for certain loans, credit cards, and other financial products and services. To make matters worse, the more you apply and get rejected, the harder it seems to become to get yourself out of this vicious cycle of bad debt and bad credit.
Improving your credit score takes time and dedication but there are some things you can do immediately that will have a fast impact on your credit file and improve your credit score from one month to the next.
The vast majority of things though, are longer-term processes and targets. It’s about considering the opportunities that are available to you, such as a bad credit loan, and making sure that you build positive habits that you follow religiously every month, such as paying your bills on time, every time, keeping your credit file up-to-date, and not applying for too many credit services in quick succession.
In this article, we’ll take a quick look at what your credit score actually is, what the credit agencies hold on file about your personal and financial information, and finally, look at some tips and offer guidance as to the best ways of improving your credit score, both quickly, and over a longer period of time.
What is a credit score?
A credit score is a 3-digit number that is an indication of how reliable you are personally as a borrower. It shows potential lenders whether or not they should trust you after you have applied for any form of financial product or credit services with them.
A credit score can range from ‘very poor’ to ‘excellent’ and include a few different points in between. Each credit reference agency has its own scoring system, so your credit score may look different depending on where you are looking for it, but most likely the scores will be in the same ballpark, and lenders typically look at more than one credit score to build an average credit score when assessing your specific application.
What is a credit reference agency?
Whenever you apply for credit, whether this is a personal loan, a credit card, or a larger loan such as a mortgage, the lender will look for advice from the credit reference agencies, gathering all the important information that is held on you. This helps paint a clear picture as to whether you are a trustworthy and reliable borrower, or not.
There are three main credit reference agencies in the UK. It is best to check your credit file with each of these at least once a year to make sure they are accurate and provide the authentic, accurate picture of your financial life that you want them to. The three main agencies in the UK are:
- Experian
- Equifax
- TransUnion
You have the right to check your credit file with any of these, though you may have to sign up for a free trial to access some information or pay to have access and change your details in some cases.
How is my credit score calculated?
Your credit score is calculated through a points system, based on what is available in your credit file. This reflects how you have managed your bills and debt. If you have always paid your bills on time, your credit score will be good. A bad credit score is given to people who have a history of missed or late payments. If you have never borrowed any money, this can sometimes be an even worse thing than a person with bad credit, as it is difficult for lenders to give an assessment as to whether you will be a good borrower.
What information do credit reference agencies hold about you?
Credit reference agencies collect information securely from public records about individuals (such as from the Individual Insolvency Register) and from various companies that you have a financial relationship with (such as your bank, any credit card supplier you have a credit card with, mobile phone providers, and utility suppliers). Some companies share customer details with all three companies, whilst some of them don’t share with all three companies. There are also cases where companies might share different types of data about their customers with different credit reference agencies.
The type and amount of data that credit reference agencies may hold on you includes:
- Your full name, current address, and the previous addresses you have lived at over the previous six years
- Information about you that is registered on the electoral roll
- All bank accounts and lines of credit you have had open in the past six years, including the dates you opened them
- All regular payments you have made on these accounts
- All payments you have missed or been late paying on these accounts
- How much credit you have available to you currently, and the percentage of your credit that you have already used and what is available to you
- Information about any people you are financially associated with, such as a person you have a joint bank account with or a joint mortgage
- Any defaults, CCJs, IVAs or bankruptcy that you have suffered in the past six years
How much of an impact does my credit history have on my future?
The impact that your credit history will have on your future will depend on what type of credit you are applying for and from what type of company are assessing your report.
For example, if a company is performing a ‘soft search’ on your credit file they will not see as much information as if they perform a ‘hard search’ on your credit file. A company must have a legitimate reason for searching your credit file, such as when you have applied for a loan with them, but they do not always need your consent to do so.
The names of your current and past lenders are never visible to companies performing a search on your report, and they can never see any soft searches that have been performed, which is helpful for when you have made a soft search to take a look at the state of your credit file.
When a company searches your credit file, the credit reference agencies provide them with the data that they need, but it is always the company itself that decides on whether or not to accept your application. They make this decision by looking at a few different sources of data, such as:
- The information on your application form, such as your employment status and information, wages etc
- The data the company holds on you if you have been their customer in the past
- Information on your credit report, held by the credit reference agencies
- Any information held on public records, such as on the electoral roll
All this information is brought together to work out your credit score, with each credit reference agency using a different process and method to come up with your unique credit score. A company will look at all of this information and decide on your application from there.
How long does it take to improve my credit score?
Every time that new information is added to your credit file, your credit score will change, and old information is removed from it. It is a continuous piece of living information, with creditors usually updating information about loans and credit information at least once a month. What this means is that that you can see a change in your credit score every 30 days or so. This might not be a massive change within the first month, but if you follow a few helpful tips on how to improve your credit score, you will see that it changes for the positive most months, as your bad debt in the past is replaced by good credit scores in the future.
Tips to improve my credit score
Below are a few tips and guidance on how to improve your credit score. By following these methodically, you can soon improve your credit score and set a strong foundation for future credit applications.
Check your credit file
The first thing you should do, and the thing that can have the quickest impact on improving your credit score, is to check your credit file for errors and inaccuracies. You have the right to access your credit file from the three main credit reference agencies in the UK, and by doing so, you can look through the information on your file and dispute anything that is inaccurate or out of date.
Register on the electoral roll
Another simple way to boost your credit score is to ensure that you are registered on the electoral roll. This provides a proof of your address and that you are who you say you are in your application for credit. Lenders use this to verify your identity. You can register on the elector roll here, or by post. If you are already on the electoral roll, check that your details are up to date when checking the other information on your credit file.
Make a big debt payment
If you can afford to do so, an easy way to have a big impact on your credit score is to pay off a big chunk of debt in one place. If you have one credit card where you have used a large percentage of the credit available to you, pay off a big chunk of that and it will improve your credit score. The more you pay off, the better the impact on your score.
Pay your bills on time
With any credit you have, make sure that you always stick to the repayments you have agreed to. Get into the habit of paying all your bills on time, every time, including all credit cards, loans, mobile phone contracts, and utility bills. If you can set up direct debits to automate payments on the same date every month, this will help you to avoid late payments and late fees.
Consider your credit utilisation ratio and statement limit
Your credit utilisation ratio is calculated by dividing your credit card balances at the end of each period by the spending limits. If you can reduce your balance on each statement, you will reduce your utilisation. One way of doing this is by paying your credit card bill twice per month. Once before the statement is generated, and again before the due date. This will lower your statement and help you to avoid interest. You should be aiming to use below 30% of your available credit, as this will help to improve your credit score and show you are not irresponsible with how you manage your debt.
Apply for a higher credit limit
Once you have managed to show that you have been consistent with paying off your monthly credit card and loan bills, you can ask for a higher credit limit. This will reduce your credit utilisation ratio and help with your score, but you must be careful that you only do this if you know you will not spend all that credit and place yourself in further debt.
Limit credit applications
Every time you apply for a line of credit the lender will perform a ‘hard search’ on your credit file, and this will temporarily lower your credit score (even more so if you are then rejected). Limit the amount of applications for credit you make, and space them out over time if you do, as this will help maintain a stable and positive credit score over time.
Close unused accounts
If you have several credit cards that you no longer use, these could have a negative impact on your credit score, as lenders may look at them as a potential risk in the future, even if they have a full available balance currently. The best thing to do is to close down your oldest accounts, as these contribute to the length of your credit history.
There are a few ways in which you can improve your credit score. Some of them will have a fast impact in making your credit score better and others that make a good habit that will stand you in good stead for the long term.
