How do I improve my credit score?
Everyone has a credit score. You might already realise it is used by finance companies and other lenders when they decide whether to lend you money or not.
It doesn’t matter whether you are making an application for a loan or switching energy companies, it is highly likely your credit file, which includes your credit score, will be looked at before you are allowed the loan or are hooked up to a new energy plan.
Although you have an understanding of what your credit score is, you may not realise that you can do things today to improve your score.
Why would I try to improve my credit score?
Quite simply, the higher the better.
A higher score gives you access to more products that are probably cheaper. For example, you need a much higher credit score get a mortgage than you would for a high-interest ‘bad credit’ card.
Although your credit score is not the only factor, it is the most important one. A low score can be a barrier to you getting the things you want or need. It makes sense to increase your score if you can.
OK, so how do I improve my credit score?
There are several steps you can take but we’ll start with the most obvious one:
Stay on top of your payments
Sorry if this is obvious but this is the easiest way to improve your credit score. That said, it’s not an overnight fix and you have to stick to it for the longer term benefits.
Personal loans, credit cards or mobile phone bills, in fact any financial transaction which involves credit, is reported to the credit reference agencies who calculate your score. Payments are recorded and will add to your credit score. Of course, missed or late payments will have the opposite effect.
It is so important to keep on top of your repayments. Set up direct debits if you can and try keeping a log of when payments are due. Something like a spreadsheet or even on a page stuck to the fridge door. A way to keep on top of your budgeting is to use the tools provided by the companies you have borrowed from.
For example, if you apply for and are offered a short term loan from us, you have access to your personal My Satsuma page. This page provides you with all the details you need to ensure your payments are made on time.
My Satsuma shows you:
- your payment history
- how much you have left to pay
- when your next payment is due
- and much more
Other lenders may provide similar services and if you can, you should regularly log in to help you manage your budget and ensure no payments are missed.
Keep your public information current
Part of your credit file has public information. This includes court judgements, bankruptcies, debt relief orders etc. But it also includes information from the electoral roll.
If you are not registered on the electoral roll or your address is out of date your credit score will plummet. Make sure you are registered to vote, even if you have no intention of doing so, and that your current address is listed. If you are a tenant and move home regularly it is easy to overlook this step but keeping your address accurate will be a big boost to your credit score.
Check your credit report
This is an essential step and one which is very easy to do.
By getting a copy of your credit file you not only discover your credit score but lots of other information including:
- Your public information, CCJs or Decrees, bankruptcies etc
- Electoral roll information
- Full name and date of birth
- Current account providers and whether any overdraft facility is being used
- Details of joint accounts and with whom they are held
- Your credit accounts. This is the main body of data. It includes credit card information, bank accounts and loan agreements. It records payments made and those missed along with whether accounts have been satisfied.
CCJs and missed payments will stay on your file for a period of six years before they are expunged. You should note personal information such as your salary is not included in the file.
How to check your credit report
You can order a copy of your report online. You can chose to order a copy of your statutory report for a cost of £2 or you could subscribe to any of the services offered by the credit reference agencies such as Experian. These services are often free but you should check carefully before signing up.
What to look for
Once you have the copy of your report you should carefully check all your personal information. Make sure it is correct and then go through all your credit accounts and make sure the data is accurate.
Mistakes don’t happen very often but if, for example, a payment is recorded incorrectly, this could harm your credit score. If you find a mistake, contact the credit reference agency and the original lender immediately.
There is no hard and fast science here but controlling how much credit you use, or utilise, can have a positive effect on your credit score. In other words, by not maxing out your credit cards you will improve your score. Try and keep balances below 30% or so where possible.
Don’t make too many applications for credit
When you apply for credit, for a loan or credit card for example, the lender will make a search of your credit file. This search is recorded and will be seen by other lenders.
If you make a number of applications in a short period of time, lenders will see this as a possible warning sign that you are desperate and therefore a bad risk. Always think carefully before making any application for credit.
Talking of which
Another way to improve your credit score, or to put some meat onto the bones of a thin credit file, is to take on more credit. Hear me out here but first a caveat. You must obviously never apply for credit you cannot afford to repay.
That said, lenders do like to see active credit accounts with a history of repayments. We’ve already discussed how making regular scheduled payments could improve your credit score. But, taking out a product such as a short term loan and making your repayments on time will be a good signal to lenders.
A final word
No one thing in isolation will make your credit score to rocket and it certainly won’t happen in the short term.
But, if you are thinking of a large purchase in a year or two, or applying for a mortgage, taking steps now to increase your score will pay off when you do eventually make that application for a major credit product.