A good credit score is important to maximise your chances of being approved for financial products such as loans, credit cards, mortgages and even mobile phone contracts.
You automatically get a credit score in the UK when you turn 18 and your credit score (ranging from 0-999 from Experian) will go up or down according to your various factors, including how well you pay off other debts and loans.
If you continuously pay off debts and keep up with your finances, you will maintain a good credit score. If you fall behind on repayments, your credit score will go down and this will make it hard to be accepted for financial products.
So if you have recently been denied credit or are looking to get a loan or mortgage, you may be looking to improve your credit score and this guide explains how to do so including:
- Joining the electoral roll
- Closing any accounts you do not use
- Keeping up to date with repayments
- Avoiding shared accounts with people with bad credit
- Using credit builder products
- Checking your score regularly
Why is it important to have a good credit score?
Credit card and loan providers will always look at your credit score when you apply for a loan. If you have a good credit score, it will significantly help your chances of being accepted and also give you access to the lowest rates.
When loan companies are processing an application, they will usually look at the credit score and they may require a minimum score in order for you to pass the first stage of checks. So if you are looking to get approved for credit, your credit score is key to success.
Join the electoral roll
One of the first things that you can do is
register yourself on the electoral roll. This will confirm your name, age and address with the local authorities and also set you up for voting in the future.
If an individual is registered to vote, it confirms their identity and address and this is a good trust indicator, compared to someone who has no fixed abode and may be difficult to get hold of. Hence, being registered is also good for your credit score and for future loan applications.
Close any cards or accounts that you do not use
If you have a lot of credit cards or facilities, this can often be detrimental to your overall credit health.
It is very easy to sign up for credit cards and there are a lot of companies, supermarkets and stores which give you bonus offers when you register, making it very tempting.
But having lots of plastic is an indication to lenders that you potentially have access to a lot of credit and you may be able to use this at any point.
So when lenders see a lot of credit cards open and active, it raises warning signs, which make you less appealing to lend to and negatively impacts your credit scores.
Keep up to date with any credit and debt payments
Keeping up with your credit card and debts is the most significant driver of your credit score. How well you have paid other forms of credit cards,
personal loans and utilities gives an idea of future behaviour and this is important when creditors are deciding whether to lend to you or not.
If you keep up with your credit payments, your score will either go up or remain high. If you miss repayments for credit cards or loans, this will cause your credit score to go down. When you get to the point of CCJs, IVAs and bankruptcy, this will make your credit score go down quite dramatically and stay on your file for a minimum of 6 years.
Remember, your credit score will move according to your credit performance, so even if you have a history of missed repayments, you can always bring this back up by consistently making payments on time in the future.
Avoid sharing accounts with others with bad credit
As a potential borrower who might be applying for a large loan or mortgage, it is important that you avoid sharing an account with another person with bad credit. This could be a sibling, spouse or parent and whilst it is common to share joint accounts or credit cards for paying your rent or family expenses, if one of you has bad credit, it may negatively impact the other person.
The reason for this is simple. People with joint accounts are often closely linked and likely to help the other one out when it comes to financial problems. So if you have applied for a loan, but you have a joint account with a spouse who has poor credit, it is assumed that you are going to be helping them with their finances too, or arguably applying on their behalf. So you will typically be considered a risky person to lend to and this is why it impacts your credit score.
Use credit builder products
To improve your credit score, you can use what is known as a credit builder product. There are types of credit cards where the credit limit is low and the interest rate is low and it is designed to get you into the habit of making regular monthly payments for things you have purchased.
By consistently making payments over time, this will help build up your credit score, making you more eligible for a personal loan or mortgage. This type of product is perfect for people with bad credit scores and looking to build up their accounts or for young people looking to build up credit.
Check your credit score regularly
One of the best things that you can do to improve your credit score is to check it regularly and make sure that you are making progress.
You can
access your statutory credit report for just £2 from the UK government, allowing you to see your current score and what has affected it.
Otherwise, you can use companies such as Noddle and Experian to keep a regular track of your credit score. These tools will give you suggestions on ways to improve your credit record and send you alerts when it goes up or down - helping you get one step closer to your financial freedom!
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