How To Raise Your Credit Score

What is a credit score?

A credit score is a number that lenders use to decide how reliable you are repaying money. It’s a bit like a financial version of an Uber rating or Airbnb score.

You don’t have just one credit score, though. Each lender or shop scores you in their own way when you apply for credit. But they all tend to use the data collected by one of the big credit scoring agencies such as Equifax, Experian, Transunion or Crediva.

So if you are aplying for a credit card or shop card, the individual company will set its own criteria about what they want to see in their customers, and this will change from one company to the next. But the profile they build is likely to come from information gathered by one of the big credit rating agencies.

So the information held by the credit rating agency is important as it will determine how easy it is to gert a loan etc. But because each company uses that information differently, you may get different decisions about credit from different companies, even if they are both basing it on the same data from the same credit rating agency.

In general though, it's fairly simple, the higher your score, the better your chances of being accepted for things like credit cards, mortgages, loans and more.

How Is The Credit Score Calculated?

1: Your payment history – do you always pay accounts on time, or do you have late payments or defaults?

2: How much you owe – if you’re always close to your credit limit, lenders may think you’re in financial difficulty

3: How often you apply for credit - too many applications in a short space of time can harm your score

I Have Never Borrowed Money But My Credit Score Is Bad - Why.....?

It feels unfair doesn't it? The only way they can judge your credit worthiness is to see how you have used credit in the past. If you have never used it, then they have nothing to go on. That seems and indeed may be unfair, but there it is.

Creating a credit history may be a good idea for some, by using credit responsibly - for instance by using a credit card and ensuring you are paying it off regularly.

---

If you’re spending your own money with a debit card, that won’t affect your credit score either way. It is credit cards not debit cards that usually help with your credit score.

---

What Is A Good Credit Score?

The average Experian Score is 790. The worst is 0 and the best is 999.

Is Credit Scoring Fair?

Well there are certain payments which are often ignored - which you may feel is unfair. For instance, normally, payments for things like council tax, savings accounts, and subscriptions (such as Spotify and Netflix) don't count towards your score.

So you might feel that you have been very careful with money, haven't used credit cards, don't have any debt and save money regularly and pay for some subscriptions on time - but often that doesn't even get noticed.

If that is your position, you still might be able to instantly boost your score by signing up for free to Experian Boost. It lets you share information about your regular spending, such as payments to savings accounts, Council Tax payments, and digital entertainment payments to the likes of Netflix and Spotify. If you're making payments like this regularly, and not spending more than you earn, you could get an instant boost to your credit score.

I Pay Rent, Not A Mortgage - Is That Taken Into Account?

Unfortunately and rather unfairly, it is not automatically considered by many agencies. However there may be a way round that.

Rental Exchange (Created by The Big Issue) is an organisation that has introduced a way of adding your rent payments to your credit report. This is done through partner organisations that are able to handle this process. When you’re set up with a Rental Exchange partner, all you need to do is update your credit records when payment is confirmed. These services are often free for tenants, and you can still use them if you’re privately renting or in social housing. Through the Rental Exchange company, your regular rent payments are recorded and verified. This verified information allows you to update your credit report, which provides proof of your timely rental payments.

How To See Your Credit Report

If you're over 18 and you've taken out credit or borrowed money before, credit reference agenciesare likely to hold a credit report on you. You can see your Credit Report for free by comntactingone the credit redferenceagencies, Experian, Equifax, Transunion etc. Seeing your own credit information will not affect your credit score. When you look at your own credit history this is called a ‘soft search’ and isn’t visible to companies on your credit report.

How Do I Correct Something In The Report, If I think It is Wrong or Misleading?

You can also add a Notice of Correction to any record in your credit history. These can help explain any extenuating circumstances that may have occurred during the last 6 years, for example a late payment due to the bereavement of someone you were financially dependent on.

If you think a record on your credit report is incorrect, get in touch and they should raise your query with the creditor involved. Banks and financial institutions may take NOCs and Data Disputes on credit reports into account when making lending decisions, but this is not guaranteed. You would have to do this with every credit rating agency if you want to make sure the details are right with everyone.

Check List Of Things To Do To Improve My Credit Score

Electoral Register: Your address links your financial activity and identity, helping to prevent fraud. Having the same address for a long time also suggests your circumstances are reasonably stable – lenders like that. Being on the electoral roll is one way that your identity and home address can be confirmed, which could help to improve your credit score. When you do move home, make sure you get the electoral register updated as soon as you can to limit any impact.

Pay On Time: Making payments on time is an important way to show you’re managing your finances responsibly. Lenders and service providers will report arrears, missed, late or defaulted payments, which could impact your credit score.

Don't Max Out Your Credit Allowance: It’s a good idea to keep unsecured balances on things like credit cards below 25% of your available credit limit. That seems to be very restricted but that's the advice from Halifax. In other words, using the credit limit the credit card gives you, can actually put you at a disadvantage, so if possible stay well within your limit. Credit reference agencies check the amount of credit available to you, and how much you’ve used – this is known as the ‘credit utilisation ratio’. As this gap narrows, your credit score could go down. Closing a credit account you don’t need anymore will affect this ratio, but it’ll also change the average age of your credit accounts. Both of these factors could reduce your credit score in the short-term.

Choose Your Friends & Partners Carefully: Things like bank accounts, mortgages and even utility bills could create a financial link between you and any joint account holders. This could impact your future credit eligibility if the joint account holder doesn’t have a good credit score. People you’re linked to financially will show on your credit record. If you’re no longer linked to someone, you could contact each credit reference agency to submit a notice of disassociation.

How Long Do I Have To Live With Past Mistakes?

Things like missed payments and going over your credit limit could have an impact on your credit score, but it should be short lived, and you may be able to improve your credit score within a number of months. However, County Court Judgements (CCJs), Individual Voluntary Agreements (IVAs) and bankruptcy will have a longer-term impact, but not forever. These will show on your credit report for six years.

Don't Apply For Too Much Credit Too Quickly

The problem here is between something you may have heard of and that is the difference between hard and soft credit searches.

Think of a soft credit search as a background glance at your credit report. It gives lenders or companies a general overview of your financial standing (sometimes called creditworthiness) but doesn't go into deep detail. Companies check your eligibility or provide a quote for a product before you formally apply. Soft searches do not affect your credit score.

A hard credit search is a much more thorough check of your credit report and history. This happens when you've formally decided to apply for a credit product. Lenders carry out hard searches when you submit a full application for products like: mortgages, loans (personal, car finance etc.), credit cards and some rental agreements or mobile phone contracts.

Hard searches leave a record on your credit report that other lenders can see. Making many applications that trigger hard searches in a short space of time can lower your score more significantly. This is because it can sometimes look like you're urgently seeking credit or taking on potentially unaffordable amounts of debt.

Listen to Money Matters on Times Radio with Adam Shaw, Fi Glover and Jane Garvey at 3:45pm on Mondays.

For more commentary follow me on Twitter/X and BlueSkySocial @adamshawbiz

Please remember everything on this site is journalist commentary and is not financial advice or guidance in anyway.

If you want to contact me - send an email via here