Have you checked your credit score lately? Understanding your credit rating is important. It tells you where you stand financially and your chances of successfully applying for things like mobile phone contracts, mortgages, or loans when you need them.
The good news is, whatever your credit score looks like right now, you have the power to improve it. Although it doesn’t happen overnight, being aware of your current credit rating means you can take steps to improve it.
Here, we’re exploring the importance of a good credit score and how to improve yours. Read on for practical tips for everyone, regardless of your current score.
What is a credit score, and why does it matter?
A credit score (or rating) is a number that estimates how likely you are to pay back any money you borrow on time.
It is calculated using a specific formula that considers your previous borrowing activity, looking at things like credit cards or mobile phone contracts you have now or had in the past.
When you apply for new credit, ranging from a store card to a mortgage, the company you want to borrow from will run a credit check and be able to see your credit score. Based on the results, they will decide whether or not to give you credit.
There isn’t one universal UK credit score. Each credit reference agency (CRA) uses different ranges, and lenders may use their own internal scoring. It’s important to note that score ranges vary by agency and can also change over time.
The three CRA scoring ranges are currently as follows:
Experian: 0–999
Equifax: 0–1000
TransUnion: 0–710
A high score means you’re a low risk for borrowing and more likely to be accepted.
A low score means you’re a high-risk candidate and less likely to be accepted.
Tips to build a good credit rating
Whether you currently have a poor credit rating or a non-existent credit score due to insufficient activity, there are always things you can do to build a good credit rating.
1. Check your credit score
Checking your credit score is simple and free, and it doesn’t negatively impact your score when you check it yourself. It’s referred to as a ‘soft credit check’, you can do this several times without harming your future borrowing prospects. There’s a blog here for more information on how to do that.
2. Check for mistakes
Mistakes can sometimes happen in your credit report.
When you access your credit report, read it thoroughly and make sure all the information is accurate.
You can dispute any mistakes, like incorrect late payments or listed accounts that aren’t yours. Make sure you report any mistakes to the relevant credit reference agency. They will investigate and correct them to improve your credit score.
3. Register to vote
You may not have linked this to your credit rating, but registering on the electoral roll can positively impact your credit score.
Lenders can use this information to verify your identity and address, which goes in your favour when applying for credit later.
4. Pay your bills on time
While paying your rent, council tax, utilities and mobile phone bills on time doesn’t directly build your credit score, it does show good financial behaviour.
In some instances, utility companies might report your payment history to credit reference agencies, so paying on time consistently can be a good move for your score.
Even if you’ve paid late in the past, always paying on time will gradually improve your score. Remember, when money is tight, you should still prioritise paying essential bills and get free debt advice early. Missed payments and defaults can do you more damage than having a ‘thin’ credit file.
If you need help remembering, it’s a good idea to set up reminders in your diary or through your phone. Direct debits are a great way to make sure you’re covered, and in some cases, you can receive a discount for paying via direct debit.
5. Set a budget
Sticking to a realistic budget is a great way to make sure you stay up to date with payments and create good financial habits that will contribute to a healthy credit score.
It can also help you see where you’re overspending and free up small amounts you could save or use to pay off credit cards or debts faster.
Check out our free budget planner to get started.
6. Join the Rental Exchange Initiative
If you rent your home and always pay your rent on time, you can join something called the Rental Exchange Initiative to improve your credit score.
It’s a programme where UK tenants can have information about their rental payment history reported to credit reference agencies to show good behaviour on their credit score.
Ask your landlord or letting agency if they’re members of the scheme and see if you can join it.
7. Keep credit spending low
Taking out a credit card and paying the full balance every month can help you to build a good credit score. It shows you can manage your credit responsibly and consistently.
However, having a card but never using it won’t help you much. Lenders like to see that you’re using your credit regularly, even if it’s only for small amounts, like subscriptions or food shops. Using too much isn’t ideal either. Try to keep your credit spending to around 25% of your credit limit and be sure to pay it off in full each month.
8. Educate yourself
Many people end up with a poor credit rating because of a lack of financial education or understanding.
If you’ve always felt “bad with money” or struggled to manage your finances, there are plenty of ways to learn how to change your approach and behaviours.
Our blog is the perfect place to start. Every month, we add new articles designed to help you learn about different aspects of your finances based on your feedback and questions.
If there’s a topic we haven’t covered there, drop us a line, and we’d be happy to create some free resources around it to help.
9. Face up to your debts
In an ideal world, you’d clear all of your debts immediately, but it isn’t that simple in reality. Facing up to any debts or credit card balances you have is the first step to improving your credit score.
If you’re struggling to meet minimal payments and falling victim to eye-watering interest rates, there are different options you might not have considered to help you reduce and eventually clear your debts, like taking out an affordable loan.
We only lend you what you can afford to pay back, and your interest rate is based on your decreasing loan amount, so we make it as easy as possible for you to work your way out of debt.
10. Get support
If you’ve realised you need to work on building a better credit rating and feel overwhelmed by what to do next, you don’t have to go through this alone.
Reaching out for advice and support can help you have a clear plan and confidence to move forward without worry or fear.
There are plenty of places to get impartial and non-judgmental financial advice. If you’re struggling with debt, you can apply for the government’s Breathing Space scheme, or visit the Debt Advice page on our website to find guidance and support.
How we can help with your credit score
Improving your credit score takes time and consistency, so remember to be patient and make small, achievable changes.
By building good habits and sticking to them, everyone can have a better credit score and boost their chances of a brighter financial future.
If you want to discuss your credit score and how you can make changes to your finances right now to improve it, we’re here to help.
Message us any time on the GMBCU app (download the app now from the Apple store or Google Play) or fill in the contact form here, and we’ll be in touch.