Want to improve your credit score quickly? Learn why a credit score is important and how you can check your credit score for free. This guide will make you a credit score expert in next to no time. You’ll even learn 10 tricks that you can use to improve your credit score for free.
Before we begin, this article is for information and learning purposes only and you should seek advice from a real financial advisor (i.e. not me!) before making any financial decisions.
Now let’s get into it!
- Why is a credit score important?
- Why should you try to improve your credit score?
- What things affect your credit score?
- Do lenders look at any data other than your credit score?
- What does your credit score affect?
- What can you do to improve your credit score?
- 1. Check your credit score regularly
- 2. Never ever miss or be late on repaying credit
- 3. Register to vote
- 4. Check your financial associations
- 5. Check your active addresses
- 6. Don’t apply for credit too often
- 7. Use a credit rebuilding card to built back your credit history
- 8. Avoid payday loans
- 9. Never withdraw cash on a credit card
- 10. Consistency is key
- What if your credit score drops?
Why is a credit score important?
A credit score is important because lenders use it to predict your future behaviour.
Whenever you apply to borrow money, whether it’s a mortgage, a loan, a credit card or even a mobile phone contract, the lender will look at your credit score to predict how likely you are to pay back them back.
The higher your credit score, the more creditworthy you appear to potential lenders.
Why should you try to improve your credit score?
Making sure that your credit score is high will enable you to borrow more money at better rates. For certain deals, you will be charged a lower rate of interest because you are perceived to be less risky. This can save you money over time.
On the flipside, having a low credit score means that lenders think you might not pay them back. This means that they will either:
- Charge you a higher interest rate to borrow money from them. This means it costs you more to borrow money.
- Not lend to you at all. This can make it difficult for you to raise funds to make large-scale purchases like a house. You also won’t have access to emergency borrowing like overdrafts or credit cards.
What things affect your credit score?
To work out your credit score, lenders look a lot of different data.
- Account data – this can include your bank and building society accounts, utility bills, insurance providers and mobile phone contracts. Details of your activity and behaviour, like paying your bills on time and repaying your debts in full, are all taken into consideration.
- Credit searches, addresses and associations – this includes records of when other lenders have searched your credit file previously. It also includes the addresses that are linked with your financial record, as well as any individuals you have a financial association with (e.g. a business partner).
- Electoral roll – this includes details of your current and previous addresses, together with who lives at them.
- Court records – this includes data on any county court judgments, decrees, bankruptcies and voluntary creditor arrangements which you are involved in. Anything which demonstrates your past history of paying back debts can be included.
Do lenders look at any data other than your credit score?
Your credit score forms only one part of what lenders see when you apply to borrow.
In addition to your credit score, lenders will also look at:
- Your application form – this will contain your key details and the reasons why you are applying for credit. You must ensure you fill out all the forms correctly, as a small mistake can be costly and ruin an entire application.
- Your history with the lender – any other accounts you have with the lender will be used to judge your suitability for the loan. If you already have a loan with a particular lender, this may make them more likely to lend to you in the future, as long as you have made your repayments on time.
- Any history of fraud – if you have any convictions for fraud, or if you have been the victim of identity fraud, this will be noted on your file.
Remember, lenders are trying to build up a picture about you which predicts the likelihood of you repaying what you borrow. Your credit score if just one of the tools that they use to do this.
What does your credit score affect?
As more and more data is collected on our financial behaviour, our credit score affects a growing number of things.
The main things that your credit score affects are:
- Credit cards – whether you will be accepted and what interest rate (APR) you will be charged.
- Loans – whether you will be accepted and the rate you will pay.
- Mortgages – if you have a low credit rating, you will find it much more difficult to be accepted for a mortgage or to remortgage to a better deal.
- Mobile phone contracts – if you buy a mobile pone on a contract, the company is basically lending you the phone for the length of the term and dividing the cost into monthly instalments. This is just like a loan, so the company will check your credit score before accepting your application.
- Insurance – If you pay your insurance in monthly instalments, the company is lending you the full value of the insurance upfront in return for equal monthly instalments with interest. This is also a type of loan, so the insurance provider will check your credit score before giving you the policy (read our article on how to save money on insurance).
The above list is not exhaustive and your credit score affects many other types of borrowing.
What can you do to improve your credit score?
Now you know what your credit score is and how important it can be, it’s time to look at how you can improve it.
There are many factors which influence your credit score. You don’t need to follow every single point on the below list to have a high score. However, the more that you do, the higher your credit score is likely to be.
1. Check your credit score regularly
The first step to improving your credit score is to check it regularly.
There are a number of free tools you can use to monitor your credit score, like Experian or ClearScore. This will give you an indicator of how lenders will view you when analysing your suitability for a loan.
Although these services “search” your credit file, this does not negatively affect your credit score because they conduct “soft” searches.
Only “hard” searches by potential lenders or other organisations will negatively affect your credit score. This is to stop you applying to many different lenders at once, which makes you look desperate for credit.
Both Experian and ClearScore allow you to sign up for free monthly credit score updates. This is an easy way to stay on top of your credit score.
2. Never ever miss or be late on repaying credit
Although this may sound obvious, this is probably the most important factor which will affect your credit score.
Even if you are struggling financially, you should try to prioritise paying back your debts on time. Even just one or two missed payments can damage your score for life.
Having missed or late payments in the 12 months before you apply for credit will seriously damage your chances of making a successful application for credit.
The simplest method to make sure you always pay back your debts on time is to set up an automatic direct debit. This takes the stress out of having to organise payments yourself and will stop you making a costly mistake that could affect you for years.
3. Register to vote
In the UK, being on the electoral roll increases your credit score and improves the chances of you being accepted for credit.
You can register for the electoral roll online at any time, so if you’re not registered and you’re thinking of applying for credit, make sure to sign up first.
Even if you use a free credit checking which tells you that you have a perfect credit score, it is still important to register. Lenders use the electoral roll to help them with ID checks when you apply for credit, so not being registered can seriously delay your future applications for credit.
4. Check your financial associations
When you take out a financial product with another person, like a joint loan or mortgage, your credit files become associated with theirs. This means that their credit history will affect your ability to borrow money in the future.
If your friends or partners have a poor credit score, it is sensible to keep your finances as separate as possible. Maintaining individual accounts rather than having a joint account is a good option.
If you have previous financial associations with someone who you are no longer financially associated with, you should make sure to de-associate your credit files. You can do this by requesting a notice of disassociation from the credit reference agencies. This can be done by phoning them or filling out a form online.
5. Check your active addresses
When looking at your credit file, make sure you address is up to date and remove any old addresses.
If your active address is not updated then this can prevent lenders from carrying out their identity checks when you apply for credit. Sometimes, lenders may reject you for this reason and not even tell you why.
You should keep your current address updated and ask the credit reference agencies to remove any old addresses that are linked to your account.
6. Don’t apply for credit too often
Whenever you apply to borrow from a lender, the lender will check your credit score and leave a hard “footprint” on your credit file. This footprint can be seen by future lenders when you apply for credit with them.
If you make too many applications within a short period of time, this will leave multiple hard footprints on your file. This can make you look desperate for credit, which can deter future lenders.
Unfortunately, this can create a vicious cycle, because the more you get rejected, the more you apply elsewhere for credit, which leaves more hard footprints on your file.
As an alternative to making loads of applications, you can often use a free eligibility checker like MoneySavingExpert’s Loan Eligibility Calculator before you make your application. This can give you an idea of whether you’ll be accepted without leaving a hard footprint on your credit file.
7. Use a credit rebuilding card to built back your credit history
Before writing this section, I want to emphasize that this is not financial advice and you should always do your own research before making any financial decision. Remember, we are not financial advisors, we just try to write informative posts on personal finance!
Now that the disclaimer is out of the way, one way you could improve your credit score if you currently have a very bad score if to use a credit rebuilding card.
A credit rebuilding card is simply a credit card for people with a poor credit score. Often, these are credit cards that come with a horrendously bad interest rate if you fail to pay them back on time.
However, if you make the payments on time, the credit rebuilding card shouldn’t cost you anything. This is good because it allows you to build up your history of making repayments on time.
This improves your credit score because it shows you can be trusted to repay your debts. Remember to set up a direct debit so you never miss a payment, otherwise a credit rebuilding card will only make your credit score worse (and potentially leave you in financial difficulty).
8. Avoid payday loans
Payday loan companies are viewed very negatively by mainstream lenders. Even having one payday loan can have a seriously detrimental impact on your credit score and prevent you from accessing credit.
You should try to avoid taking out a payday loan at all costs, as it can really hurt your chances of successfully applying for credit in the future.
If you have already taken out a payday loan, don’t despair. Time is a good healer and the longer the period of time since you took out the loan, the better. Just make sure not to take out one in the future if it can be avoided.
9. Never withdraw cash on a credit card
Withdrawing cash on a credit card is usually very expensive to do. Even if you make your monthly repayments in full, many credit card companies will charge you extra for withdrawing cash.
In addition, lenders view withdrawing money on a credit card as evidence of poor money management. Even something as small as £10 could leave a black mark on your credit file.
10. Consistency is key
Two of the key factors that lenders will look at when assessing your creditworthiness are consistency and stability.
For example, homeowners tend to be viewed more favourably than renters because lenders think that owning a house shows you are financially secure. Similarly, lenders generally prefer applicants who are employed rather than self-employed.
Although this may seem unfair, it should be taken into consideration when assessing your own credit score. Lenders prefer to see a consistent and stable employment history or a long record of paying back your debts on time. The more you can demonstrate these things, the better.
What if your credit score drops?
Credit scores can be a tricky thing to understand. Most of us aren’t taught about this stuff in school (which is why we created this site in the first place) and you may have accidentally done things in the past which have caused your credit score to fall.
If this is you, then rule number one is to not panic. Time is a great healer and you don’t need a perfect credit score to be attractive to potential lenders. The important thing is that you understand the factors which can affect your credit score and the steps you need to take to improve it.
Once you have researched why your credit score has fallen and have taken steps to increase it, you need to persist with these habits until your score improves. Many of the things which will improve your credit score are good money habits anyway, so you’ll reap the benefits in more ways than you think.
A credit score is an important tool that lenders use to assess your suitability for credit. Understanding the factors which can affect your credit score is the first step to making sure your score is as high as it can possibly be.
If you found this post useful, leave us a comment down below.