Improving your credit score unlocks access to better interest rates, higher credit limits and a wider choice of offers. But a bad credit rating isn’t the end of the world, as there are a series of things you can do to boost your credit score and safeguard your financial future.
What is a credit score?
A credit score, or credit rating, is how a lender checks if you’re a suitable candidate for borrowing money. A credit check takes place as part of a mortgage, loan or credit card application, and takes various factors into account.
The three major UK credit reference agencies generate their own score based on your past financial behaviour, to help lenders predict your future financial behaviour.
The higher your credit score, the better.
Each credit reference agency assesses different data in its own way, so your score differs across the three agencies. Therefore, there isn’t one official score for every individual. Your lender’s decision whether to give you credit depends on which credit reference agency they use to run credit score checks and generate credit reports.
If you have a history of bad credit, this will affect your credit score. If there’s not much data to assess, this has a negative impact on your credit rating, too.
Here are 10 ways you can improve your credit score.
1. Get a credit card
While bad credit card debt is never smart, using a credit card responsibly is a superb way to boost your credit score.
Lenders are looking to predict your future behaviour, so the less they can see from your past activity, the higher the chance they’ll reject you. Using a credit card sensibly helps to build an excellent credit history.
Make sure you pay the balance in full every month to build a history of good credit and maximise the benefits to your finances. And don’t withdraw cash from your credit card, as this suggests you’re unable to manage your finances competently.
Using a credit card sensibly shows you’re a responsible borrower; amounting to a huge tick on your credit score.
2. Practice low credit utilisation
Even if you’re paying your credit card off in full every month, try to keep your balance low throughout the month. Low utilisation of your available credit card limit shows you’re sensible and measured in your financial actions, which reflects well on your credit rating.
Credit score checks take into account what percentage of your available balance you use, so try to keep it below 25%. For example, if your credit limit is £1000, your balance shouldn’t exceed £250.
3. Register to vote
Registering to vote at your current address will benefit your credit score.
You can register on the electoral roll at your address, even if you live in a shared house, or with your parents.
4. Make sure your name is on household bills
Check your name appears on household bills at the same address.
If it doesn’t, set up an account in your name, like a phone contract or credit card, to enhance your credit score.
5. Don't default on payments
Paying your bills on time every month is a fantastic way to keep your credit score healthy. Direct debits help you stay on track with payments, so set them up if you haven’t already.
If you know you’ll struggle to make a payment, don’t let the payment bounce. Seek advice to see what your options are. It may be possible to pay later, arrange an emergency overdraft or extend an existing overdraft temporarily to cover it.
Or, you could apply for a loan with manageable repayment options. All of our members can apply for loans with GMB Credit Union - you’ll get a quick decision and we only lend responsibly, to prevent members falling into financial hardship.
Either way, avoid defaulting on payments, as this has a detrimental effect on your credit score.
6. Close old accounts
Give yourself a DIY financial audit and shut down any old, unused bank accounts, store credit accounts and credit cards. Credit reference agencies factor these into your credit score as long as they remain open, so clear out the financial clutter and start with a clean slate.
7. Check your credit score regularly
Keeping a close eye on your credit score will help you spot and correct any mistakes and alert you to identity fraud.
Members can make unlimited credit score searches using CreditView, our free-to-members credit score checker. If errors appear on your report, you can contest and rectify them, to improve your credit score.
8. Don't make too many applications
Each application for credit leaves a footprint on your credit file for a year, so use your applications sparingly to keep your credit score healthy.
It’s tempting to keep applying after a rejection, but resist the urge and instead look at how to improve your credit score, so you’re in a better position when you next apply for credit.
9. Don't let someone else's bad credit affect you
If you have a joint account with a partner who sends it into an unarranged overdraft, or your flatmate pays a bill late in your name, this will affect your credit score.
Every financial activity associated with your name impacts your rating, so make sure you don’t pay the price for someone else’s recklessness.
If you’re concerned about someone’s financial dependability, don’t risk it. Keep your account separate and manage your own finances.
Once you move out of a house share or end a relationship, close any joint accounts, loans or mortgages to cut all financial ties.
10. Pay your insuranance annually if you can
One last way you can improve your credit score is to pay for home and car insurance annually, if possible.
When you request to pay for insurance in monthly instalments, the insurance provider runs a “hard search” on your credit rating, which will show up on your credit score.
While insurance providers and comparison sites run “soft searches”, these don’t affect your rating. Only you can see soft searches on your credit file.
Plus, many companies add substantial interest onto your policy when you pay monthly, so if you can budget to pay the annual amount in one lump sum, it’s much better for you and your finances.
How can I check my credit score?
If you’re unsure about your credit score and want to run a free check to see what your rating is, you can do this with one of the three major UK credit reference agencies, Experian, Equifax and TransUnion.
TransUnion provides our free credit score checker, CreditView. Plus, all GMB Credit Union members enjoy free, unlimited access.
Check your credit score here.
More help from us
It can take a while to start seeing the benefits of these 10 changes in your credit score, so what should you to do until then?
Our ‘Save and Borrow’ account helps to assist members with poor credit history to rebuild their credit rating so that they can access better borrowing opportunities in the future.