Credit Scores Explained – Tips On Improving Your Score

Credit scores have gotten more and more important in recent years, and chances are as we progress and the financial industry evolves credit scores will grow still more important. Every individual has a credit score, and it is a figure that, in a nutshell, tells prospective lenders, banks and financial institutions how good you are at managing your money and the money that is lent to you. Credit scores are measured by three main bodies, and each has its own slightly unique algorithms and methods for generating this score. The core principles remain across the three bodies, however (as do weightings and stipulations) therefore your credit score will be determined based upon the following:

  • How much credit you are currently using, and how much credit you have available to you to use
  • Your total debt amount
  • Your recorded history of debt management, inclusive of how well or how poorly (and how slowly or how quickly) you have been repaying this debt
  • The amount of credit searches you have made and the amount of applications for credit that you have submitted (these do not remain on your credit score forever however and do disappear after a pre-determined length of time)
  • The accuracy of public records, including your inclusion on the electoral roll

These are some of the main factors that affect your credit score but do bear in mind that there are also other factors that will have an effect.

How To Improve Your Credit Score

Thankfully, there a lot of things that you can do to improve your credit score. So if your credit score is bad currently, and you have had applications for credit rejected on this basis then do not despair as with some effort, and a little bit of energy you will be able to secure yourself a better credit score which in time will facilitate the acquisition of loans and credit cards with more favourable terms. Unfortunately, the credit cards et al with these favourable terms are almost always only accessible to those with a good score. So let’s jump into our top tips to improve your credit score!


Pay All Of Your Bills When They Are Due (Or Before):

This is good practice in general, irrespective of the effect it has on your credit score. How reliable you are with the paying of your bills will tell lenders a lot about how you manage your personal finances, and will therefore be a large determining factor when considering your applications for credit. You can set up direct debits for almost all of your household bills, and other bill types such as your mobile phone, which will ensure that they are paid on time. With direct debts the only thing you need to make sure of is that you have enough money in your account when these direct debits are due to be taken.


Only Apply For Credit When You Need It (And Limit Your Applications):

If you make too many applications for credit in a short space of time this will tell lenders that you are desperate to acquire credit (all applications are denoted on your credit score as they are considered hard searches). If possible, you need to be measured in your applications, spreading them out over as much time as you can, the longer the better. Generally speaking, our advice would be to try to make no more than 1 single application for credit in a 3 month period but do also bear in mind that individual lenders criteria will vary.


Make Sure You Only Ever Borrow What You Know You Can Afford:

By only making applications or securing yourself credit that you know you can afford to repay you make sure that your credit score won’t be negatively affected. If you borrow too much it is very easy to fall behind on your payments, especially when these payments include interest – you must make sure that you account for interest in all of your repayment estimations and budgets (especially before you take out your loan). Falling behind on your loan payments can lead to a County Court Judgement being made against you, you risk defaulting, bankruptcy, as well as Individual Voluntary Agreements. These are very serious implications to borrowing and can stay on your credit file for up to 6 years, whilst also having a massive impact on your credit score.


Get Yourself Registered On The Electoral Roll:

If you have not already, registering yourself on the electoral roll will improve your credit score. This is because lenders will be able to tell your fixed/current address which will in turn have a positive impact on how trustworthy you appear as a potential loanee. If you have recently moved then make sure to update your address on the electoral roll (which is a simple process) and it is also best practice to make sure that you update your new address with your bank(s).


Make Good Use Of A Credit Builder Credit Card:

There are a great many credit cards out there that have been designed and built with the sole purpose of improving your credit score. These are truly numerous and almost all major providers and many smaller providers offer their own slightly different version of the credit builder credit card. All you need to do is use the card as usual making sure that you repay the entire amount due at the end of each month (this will also make sure that you are not charged interest which is often extortionate on credit builder credit cards) and by doing this regularly for around 6 months will mean that your credit score is likely to start improving.