7 ways to improve your credit score (UK – 2022)
In these uncertain economic times, it has never been more important to have a strong credit score. If you’re applying for a mortgage, a loan or even a mobile phone contract in the UK in 2022, then your credit score will be key to deciding your eligibility. So this week on T7L we are looking at 7 ways to improve your credit score. Improving your credit score is a marathon, not a sprint, so if you are looking for ways to quickly improve your credit score it may not be something that happens overnight, but there are certainly methods you can take to incrementally push those scores up. Some actions may make a swift change, but credit scores are determined by a combination of factors, so you may have to address a number of issues over some time to see a difference. So if you are looking to understand how to improve your credit score, then read on.
A lender will not employ a single, uniform credit ‘rating’ or’score’ when assessing whether or not to accept you as a customer. There is no such thing as a “credit blacklist” anyway. A credit reference agency (CRA), most likely one of the ‘big three’: Experian, Equifax, and TransUnion, will submit your credit report to your chosen lender. A credit score is calculated using the information in your credit report. While they all calculate your score in slightly different ways, the majority of the elements they utilise are the same.So, whether you’re trying to improve your score after the financial strains of 2022, or simply trying to ensure you’re offered the best products this year, there are a few easy steps you can take to maximise your score.
Each of the three major credit reference agencies in the UK has a scale for determining what constitutes a “good” or “excellent” credit score.
- Equifax 531 to 670 is good; 811 to 1,000 is excellent
- Experian 881 to 960 is good; 961 to 999 is excellent
- TransUnion 604 to 627 is good; 628 to 710 is excellent
While having a ‘good’ or ‘outstanding’ credit score can help, it does not guarantee that all lenders will extend credit to you or treat you equally. Each lender has its own set of criteria for selecting whether or not to lend to you, so you could be turned down by one but accepted by another. If you have a low or ‘poor’ credit score, you’ll be more likely to be turned down when applying for a loan, therefore you should work to raise it. Read on for our top 7 ways to improve your credit score.
Ways to improve your credit score #1: Never miss a payment
Being able to establish that you are a responsible borrower, that you can pay your payments on time and keep within any limits you’ve been allowed, is critical to your credit score. Demonstrating that you can pay on time and keep within your credit limit can help lenders see you as a responsible borrower.
Unfortunately, this is harder than normal in 2022 because of the rising cost of living. If you are having difficulty paying off your debts or making minimal payments, you should notify your creditors as soon as possible and try to negotiate more assistance. If you miss a payment or are late with one, it will appear on your record within a month. According to Experian, one late payment on a credit card or loan can lower your score by as much as 130 points. A late payment will appear on your credit report for six years, however the impact will diminish with time. If you’ve just missed one payment, your credit score may begin to improve after six months and should be entirely restored after a year.
Ways to improve your credit score #2: Keep your credit usage low
In assessing your risk, lenders will consider not only your outstanding obligations, but also the amount of credit you have accessible. If you have a limited amount of accessible credit and only pay the minimum amount due on your credit card each month, lenders may presume you’re having trouble paying off your debts.
Your credit utilisation is the percentage of your credit limits that you are using at any particular time. According to Experian, borrowing more than 90% of a credit card’s limit can lower your credit score by 50 points. Keeping your balance below 30% of your limit, on the other hand, will enhance it by 90 points. Maintaining a credit card debt of less than £50 can earn you 60 bonus points. To help you get out of debt faster, try paying more than the minimum or the entire amount each month.
Ultimately, your credit utilisation is the second most important component in determining your credit score (the biggest factor being paying on time).As an additional tip, you can ask for higher credit limits. When your credit limit is increased but your balance remains the same, your overall credit utilisation is reduced, which might help you improve your credit. You have a good chance of acquiring a bigger limit if your salary has increased or if you’ve added more years of good credit.
Ways to improve your credit score #3: Register to vote and get your name on some bills
One of the quickest and easiest ways to boost your score is to register to vote. It may be difficult to obtain credit if you are not on the electoral roll. The electoral roll is used to verify that you live at the address listed on your application, which is an important component of the identity checks that lenders must conduct. According to Experian, this alone will boost your credit score by 50 points. Even if it is not an election year, it is critical that you register to vote at your new address if you move. This is something to keep in mind before submitting any new applications. The register to vote website allows you to register to vote at any time, and it only takes five minutes. Worth noting, you can add a note to your report explaining why you can’t register to vote to help avoid any delays.
In addition, a common issue in married couples or those living together, is if one person in the couple has all the bills in their name. The ‘gender credit score gap,’ according to Credit Karma (which uses TransUnion data), is caused by women not having financial products in their own name. According to the study, 31% of women have some or all of their financial arrangements in the name of their partner, and they are less likely to hold credit cards, mortgages, or personal loans. If you don’t have any loans or credit cards, putting your phone and utilities bills in your name will help you improve your credit score
Ways to improve your credit score #4. What gets measured gets managed
This is a big one; monitor and regularly review the data around your credit score. It’s a good idea to check your credit report at least once a month to ensure that the information on it is accurate and current. Experian estimates that three out of ten people have never checked their credit report. Not only will they be unaware of their chances of being approved for financial goods, but they will also be unaware of any inaccuracies in their report.
With the surge in identity theft and fraud, it’s a good idea to keep an eye on the information in your credit report on a regular basis. You should check the information that each of the three major credit reporting companies has on you (Equifax , Experian, and TransUnion). These companies have a legal obligation to provide you with your statutory credit report for free. If you find any errors, you should correct them as quickly as possible to guarantee that they aren’t pulling down your credit score unnecessarily and will not affect future credit applications. You can do so by contacting the company that submitted the inaccurate information or by contacting the credit reference agency directly, which will conduct an investigation on your behalf.
There are also some great apps out there that are utilising open banking to aggregate and visualise your banking data to really help to optimise your finances. Our personal favourite for this is Emma. Described as a ‘fitness tracker for money’, Emma is a personal finance and budgeting tool that helps you avoid overdrafts, cancel wasteful subscriptions, track expenses and save money. By using state of the art technology to analyse your accounts and give you the power to make smarter budgeting decisions with your money, Emma claims to be able to save you up to £600 every year. Make sure you sign up, it is completely free and is a gamechanger to managing your personal financial situation.
Also, make sure your address is current on all active accounts (even if you no longer use them). When applying for a loan, your address is crucial because lenders will need to verify your current residence. It’s usually a good idea to double-check your address, even if it appears to be correct at first glance. Is your house’s name, for example, written exactly as it appears on the electoral roll on the report?
Experian Boost, is a recent addition to the Experian service, allows users to use open banking to safely examine your current account activity without requiring your login credentials. For the first time, real-time financial data may be used to determine your score, thanks to this breakthrough. This includes things like council tax, savings and investments, and digital entertainment subscriptions like Amazon Prime, Netflix, and Spotify. According to Experian, the tool could help 17 million people improve their score by up to 66 points, making it a quick and easy way to improve your score in 2022.
Ways to improve your credit score #5: Use ‘soft searches’ for new credit and avoid multiple applications
A lender will run a ‘hard credit search’ on you when you apply for credit to see if you are eligible. This will leave a ‘footprint’ on your credit file that other lenders will see. When applying for new credit, it’s worth requesting lenders to run a ‘soft search’ rather than a rigorous credit check. This will give you an indication of whether your application will be accepted and what interest rate you’ll be charged, but it will not appear on your credit report to other lenders. If at all feasible, utilise a soft search.
Eligibility checks provided by third parties and agencies can ‘pre-approve’ you for a card, indicating that your application would be successful. While your credit report contains the majority of the information needed for an application, credit reporting agencies (CRAs) do not make the final decision. For example, during the initial Covid lockdown, the number of clients who were pre-approved for credit cards using Experian‘s technology (24%) was half of what it was in August (50 percent ). This wasn’t due to Experian or credit scores, but rather to the economic uncertainty that followed the first lockdown, which caused many lenders to tighten their lending and affordability standards. If you check your eligibility first, you won’t be harmed by a denial that isn’t your fault, and more and more lenders are now giving soft searches on loans, credit cards, and mortgages.
If you do submit an application and are rejected, do not apply for another product right away. Multiple applications in a short period of time can be seen as a red flag, since it may indicate that you are in financial distress. Whether or not an application is approved, it will be on your report for a period of 12 months. In most cases, it won’t hinder your prospects of getting credit after three months. According to Experian, waiting six months before opening a new account might improve your credit score by 50 points.
Ways to improve your credit score #6. Make your rental payments count
With so many people renting rather than owning houses, tenants often complain that their rent doesn’t count toward their credit score. Tenants sometimes pay out much more in monthly rental payments than homeowners yet still find it difficult to prove they could borrow and afford to repay loans such as a mortgage.
However, there are now a few options to include your rent on your credit report and increase your credit score. Tenants in council or social housing can request that their landlord record their rental payments to The Rental Exchange, a free service that will appear on their Experian credit report. Private tenants can also request that their landlord disclose rental payments to The Rental Exchange, or they can self-report using CreditLadder (which reports to Equifax and Experian) or Canopy (which reports to Equifax and Experian) (reports to Experian). CreditLadder and Canopy, like Experian Boost, use open banking to track rental payments through your current account with your permission.
Ways to improve your credit score #7. Use a credit-builder card
You could assume that because you’ve never borrowed money before, you have an excellent credit score. In fact, this is highly unlikely. Lenders look for proof that you’ll be able to repay the money you borrow, so a lack of successful repayments can work against you. A credit-builder credit card might help you improve your credit score if you have a bad credit score.
As the name implies, the primary goal of these cards is to help you improve or develop your credit score. As a result, they frequently offer lower credit limits and higher interest rates than other credit cards in order to encourage responsible, credit-building spending.These cards may also be useful if you have a ‘thin file,’ as CRAs refer to borrowers with little credit history. This may appear to work in your favour, but this is not always the case. Your credit history is required by CRAs in order to determine the level of risk you pose to lenders. However, because these ‘credit building’ cards are geared at higher-risk customers, their APRs are typically very high, therefore you should never borrow with them.
So there you go, 7 ways to improve your credit score. Follow these tips and stay on top of monitoring your creditworthiness, and your score will be shooting up in no time! Another great method to improve your overall credit score is to build your income, so don’t miss our guide to growing your Passive Income here.
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