A Guide to Improving Your Credit Score Rating
When it comes to borrowing money, it’s your credit score rating that’s perhaps the biggest measure of how a lender sees your application. If you’re trying to improve your credit score, however, our guide offers some ways in which you can improve your rating, by looking at some of the common things that affect it and what you can do to change them.
What is Your Credit Score Rating?
A lender doesn’t know you personally, so when it comes to lending you money, a credit score is a way of providing them with a financial history. It’s a numerical figure and the higher that figure the better you appear to lenders.
Your score forms part of the process when you apply for credit. It’s also worth remembering that lenders don’t all use the same credit rating agency and the score from one isn’t universally accepted across all lenders.
For example, the largest credit rating agency in the UK is Experian. Their credit score rates you from 0 to 999 and rates you in one of five categories - very poor, poor, fair, good and excellent. If you’re in their 961-999 range your credit score is considered ‘excellent’. An Equifax credit report ranges from 0 to 700. To be in the Equifax Excellent rating you’d need to score between 466 and 700.
Most UK credit rating agencies use this same five category scale. However, the difference in the scoring systems needn’t worry you, as ratings are based on your personal payment and credit history.
Your Credit Score and Your Credit Report Are Different
Your credit score is a numerical number assigned to your credit history and then rated, usually from ‘very poor’ to ‘excellent’. It gives lenders a snapshot of your financial history if they need to make a quick decision.
Your credit report is a more detailed look at your history. A credit report looks in more detail at:
- Personal information
- Your past and existing credit accounts
- Any credit enquiries
- Public records
The report gives details on any accounts you have open and their balances. It’s a record of your history of things like loans and credit cards. And if you’re behind with any payments your credit report will show it.
It’s worth remembering that lenders use their own criteria too. A good credit rating does not guarantee you’ll be accepted. Likewise, a poor score won’t necessarily mean rejection.
But, getting good advice from a broker can help navigate the lenders criteria and reduce any chances of you being penalised by interest rates.
What’s a ‘Thin’ Credit Score Rating?
Sometimes you might have little or no history of credit simply because you’ve not had the chance to build it up.
For example, depending on your circumstances, the below might cause a thin credit score:
- You’re young, or a student, and haven’t had the chance to build a good credit score
- You were recently widowed or divorced and didn’t take out credit in your own name
- You haven’t borrowed money for a long time
- You’re new to the country
Unfortunately, when creditors don’t have much information on your credit history your borrowing options can be different. It is often that the lower the credit score, the more interest you may be asked to pay.
When a creditor loans money, they look at the ‘risk’ of a borrower not paying them back. Your credit score helps them assess the risk of this happening.
If a borrower has a lower score the lender might consider them a higher risk of not paying back the loan in full and attach a higher rate of interest to cover missed payments or failing to pay any loan completely.
A higher score would potentially mean lower interest rates.
What Affects Your Credit Score Rating?
Naturally, understanding the things that affect your credit score rating are also the things that can help you improve it. The following areas will typically affect your credit score:
- Missing payments or having late payments or defaulting on a credit agreement altogether
- Regularly being over your credit limit
- Regular cash withdrawals on your credit card
- Bankruptcy and County Court Judgements (CCJs)
You might also be the victim of a credit report error or fraud. So, it’s always worth checking your report to keep an eye out for anything that looks out of place.
There are also factors you may not consider wholly financial, as such, that can affect your score too:
- Being absent from the electoral roll
- Moving house frequently
- Holding a joint account with someone who has a poor credit score
Improving Your Credit Score Rating
The factors listed above can affect your score both in a positive way and a negative way. Addressing any problems with them can help improve your credit rating score and support your financial well-being.
- Make any credit payments on time. Your score will be improved greatly by simply making payments on time.
- You should spend on a credit card every so often but stay within your credit limits and avoid cash transactions on your credit card. Try to make more than the minimum monthly payment on any existing credit card loans and set up a direct debit so you never miss a payment.
- Be mindful of any new credit and the risks associated with it. Avoid payday loan and ‘Buy Now Pay Later’ schemes such as Klarna.
- Keep an eye on any old accounts and shut them down if necessary.
- Be mindful of links with someone else’s financial history such as joint accounts and, where you can, disassociate yourself from them by contacting the credit reference agencies.
- Pay off any outstanding County Court Judgments (CCJs) or defaults.
- Get yourself listed on the electoral roll.
- Look after your bank balance.
The amount of credit you have versus the amount you can borrow may also affect your credit rating. If you’re constantly at the limit of what you can borrow, try to reduce it. Typically your Credit Utilisation Rate (as it’s known) isn’t universally agreed as an important factor, but keeping any borrowing below 30% of your limit is considered a good step.
Some Final Thoughts
Your score is affected by various elements of your financial history, but the score isn't fixed and will change depending on how you manage your financial affairs.
Many credit agencies offer you the chance to check your score for free. This gives you a starting point to start to improve your credit score rating.
And when your score is near where you'd like it to be, you should work to keep it there. So, only get credit when it's necessary and keep credit card debt down to a minimum. And of course, pay your bills on time.
A credit repair agency will only do the same things you can but charge you a fee for it. And remember improving a credit score takes time. Promises of quick fixes are false.
Even the smallest of changes will start to improve your credit score.