Understand your rating
Before you start thinking about how to boost your credit rating, it is important to understand exactly what it is and how it is used.
Banks and other lenders look at your credit score when they are deciding whether to agree to any application to borrow money – this could be in the form of a loan or credit card, or if you are buying a new mobile phone contract.
There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion. They hold data about your financial history, such as any debts you already have, which is known as your credit report.
This report is then used to generate a score to show your creditworthiness. Each reference agency has its own numbering system but the higher the score the better, and the more likely you are to have your loan application accepted.
Your score could also have an impact on how much money you can borrow and what rate of interest you are charged for it.
Check reports …
Read the report that each credit reference agency holds on you to make sure they are correct as mistakes could lower your score.
They typically offer several ways, free and paid-for, to check your record. You can go to their website and request a free copy of your statutory credit report.
There are several options for seeing your score for free. MoneySavingExpert’s Credit Club lets you access your Experian score. ClearScore will give you a score based on information provided by Equifax. Subscribing to Credit Karma lets you see your TransUnion score.
Paula Roche, the managing director of consumer solutions at Equifax UK, says: “Contrary to popular belief, checking your credit report will not change the score itself, so there’s no harm in taking a look, and it can be extremely empowering.”
… and correct errors
Common mistakes include having the wrong address on file or missing relevant information.
If you spot a mistake, contact your lender to ask it to fix it.
If that is unsuccessful, you can contact the credit rating agency to get it fixed or add a note to your report explaining that it’s an error.
Borrow – carefully
A common piece of advice to anyone trying to build up their credit rating is to get a credit card. While this helps to an extent, you need to be careful how you use it.
Using a credit card responsibly shows that you are likely to repay other debts, which will boost your score.
The most important thing is the credit limit you are given – a high maximum will appear on your credit file and signals that other lenders have already decided that you are a responsible borrower.
However, you also need to think about your credit utilisation – how much credit you are allowed to borrow and how much you actually use. If you are given a credit card with a £1,500 limit, for example, you should stick to a self-imposed limit that is less than the maximum.
Experian recommends only borrowing up to 30% of your limit. If you regularly max out your card, that suggests to other lenders that you are relying on borrowing for everyday spending even if you pay it back each month.
James Jones, the head of consumer affairs at Experian, says: “The lower [your credit utilisation] the better – it is a reflection of how reliant you are on that credit.”
Regardless of how much you borrow, make sure you always repay it on time, otherwise you will be penalised.
Register to vote
Being on the electoral roll helps banks and other lenders confirm your identity. If you have recently moved home it makes sense to get on the register as soon as possible, even if there’s no election coming up. You can do this online using the government’s register to vote service.
Pay bills on time
The way you use your current account will also show up on credit reports, as will things such as whether you pay your phone and energy bills on time.
For example, it could affect your score negatively if a direct debit or cheque bounces or you go into an unarranged overdraft because there’s not enough money in your account.
“Just try to keep your account in order – we’re only interested in borrowing, so if you have got a positive account we won’t see that,” Jones says.
To avoid any mistakes, consider planning your direct debits and standing orders to leave your account on or just after payday.
Split it
If you live with your partner, it might be tempting to let one person deal with all the bills. But that means that you won’t be building up your own credit score and can have implications for future borrowing, so make sure your name is on some of the bills.
If you split up, you should also be thinking about how that will affect your credit score, particularly if you had joint borrowing such as a mortgage. Don’t assume that your credit profiles will be unlinked after you break up, even if you get divorced.
“If you have been in a relationship and linked up your credit rating then going through a divorce will not sever that link,” Jones says.
Once you’ve closed the joint accounts or transferred them into individual ownership, you still need to break the connection between your credit reports.
Contact the three big credit rating agencies to ask for a financial dissolution so you won’t be affected by your ex-partner’s borrowing habits.
Don’t panic
Even if you’re financially responsible, sometimes life events mean you will struggle to make a payment or will miss a direct debit. You can add a note on to your credit report to explain why your score is low but you’ll need to contact all three ratings agencies.
It is called a notice of correction and can be up to 200 words long, allowing you to give context such as falling behind on your payments because of redundancy or illness.
This won’t boost your score but it does mean banks won’t automatically decline your credit application. Instead, they will manually assess it – which may make the process longer – and consider whether to offer you a loan taking that context into consideration.
You can remove the notice of correction at any time if you find you no longer need it.
