Understand your rating
Before thinking about how to boost your credit, it’s important to understand exactly what it is and how it’s used.
Banks and other lenders look at your credit score when deciding whether to agree to an application to borrow money – this could be in the form of a loan or credit card, or if you buy a new cell phone plan.
There are three major credit reference agencies in the UK: Experian, Equifax and TransUnion. They contain data about your financial history, such as any debts you already have, also known as your credit report.
This report is then used to generate a score to prove your creditworthiness. Each reference agency has its own numbering system, but the higher the score, the better and more likely your loan application will be accepted.
Your score can also affect how much money you can borrow and what interest you have to pay for it.
Read the report every credit reporting agency keeps on you to make sure they are correct, as mistakes can lower your score.
They usually offer several ways, free and paid, to check your record. You can go to their website and request a free copy of your legal credit report.
There are several options to view your score for free. MoneySavingExpert’s Credit Club gives you access to your Experian score. ClearScore gives you a score based on information provided by Equifax. If you subscribe to Credit Karma, you can see your TransUnion score.
Paula Roche, the director of consumer solutions at Equifax UK, says: “Contrary to popular belief, checking your credit report itself won’t change the score, so it doesn’t hurt to take a look, and it can be very empowering.”
… and correct mistakes
Common errors include the wrong address in the file or missing relevant information.
If you discover a mistake, contact your lender and ask them to fix it.
If that doesn’t work, you can contact the rating agency to have it fixed or add a note to your report explaining it’s an error.
Borrow – careful
A common piece of advice to anyone trying to build their credit is to get a credit card. While this helps to some extent, you have to be careful how you use it.
Using a credit card responsibly shows that you are likely to repay other debts, which will increase your score.
The most important thing is the credit limit you get – a high maximum will appear on your credit file and indicate that other lenders have already decided that you are a responsible borrower.
However, you also need to think about your credit usage – how much credit you are allowed to borrow and how much you actually use. For example, if you get a credit card with a limit of £1,500, you must adhere to a self-imposed limit that is lower than the maximum.
Experian recommends borrowing a maximum of 30% of your limit. Maximizing your card regularly suggests to other lenders that you are dependent on loans for everyday expenses, even if you pay them back every month.
James Jones, Experian’s head of consumer affairs, says: [your credit utilisation] the better – it’s a reflection of how dependent you are on that credit.
No matter how much you borrow, make sure you always pay it back on time or you will be fined.
Register to vote
Being on the electoral roll allows banks and other lenders to confirm your identity. If you have recently moved, it is wise to register as soon as possible, even if there are no elections coming up. You can do this online through the government voting register.
Pay bills on time
The way you use your checking bill is also reflected in credit reports, as well as things like whether you’re paying your phone and utility bills on time.
For example, it can negatively affect your score if a direct debit or check bounces or if you have an unauthorized overdraft because there isn’t enough money in your account.
“Just try to keep your account in order — we’re only interested in borrowing, so if you have a positive account, we don’t see that,” Jones says.
To avoid mistakes, consider scheduling your direct debits and standing orders to leave your account on or just after payday.
If you live with your partner, it can be tempting to have all the bills handled by one person. But that means you’re not building your own credit score and it could affect future loans, so make sure your name is on some accounts.
If you break up, you should also think about how that will affect your credit score, especially if you had a joint loan, 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’ve been in a relationship and you linked your credit, going through a divorce isn’t going to break that link,” Jones says.
After closing the joint accounts or transferring them individually, you still need to disconnect your credit reports.
Contact the three major credit rating agencies to request a financial dissolution so that you are not influenced by your ex-partner’s borrowing behavior.
Do not panic
Even if you are financially responsible, life events can sometimes cause you to struggle to make a payment or miss out on a direct debit. You can add a note to your credit report explaining why your score is low, but you must contact all three rating agencies.
It’s called a correction message and can be up to 200 words long so you can provide context, such as late payments due to layoff or illness.
This will not increase your score, but it does mean that banks will not automatically reject your credit application. Instead, they’ll review it manually — potentially lengthening the process — and consider whether they can offer you a loan, keeping that context in mind.
You can delete the correction message at any time if you find that you no longer need it.