A good credit score, or credit rating, is important because it impacts upon your ability to borrow money (think loans, credit cards and mortgages). You should try to get your credit score the best it can be because a higher score generally means that lenders will view you as a lower risk so will be more likely to approve your application and offer you products at lower interest rates.
How To Build Your Credit Score
We have put together a list of simple steps to help you start building your credit score today:
1. Make Sure You Are Registered on the Electoral Roll
Credit Reference Agencies (CRA) use the electoral roll (also known as the electoral register) to confirm your identity. If you are not on there, you may find it more difficult to get credit. This is because being registered can make you seem more stable to lenders, which may help increase your chances of getting approved for credit.
If you are not already on the electoral roll you can register here.
Contact your local authority if you are not sure if you are registered or not.
2. Be Mindful of Changing Addresses
Lenders like to see consistency on your credit report as it suggests that you are less of a financial risk and are more likely to repay your debt. If there are frequent address changes on your report, it may indicate that you are not in a stable postion and this could impact your credit score.
3. Review Your Credit Report
Even a minor error on your credit report can have a negative impact on your credit score. Take a bit of time to go through your credit report to check all of the information is correct. If you do spot any incorrect details be sure to report this immediately.
At CreditKnowledge.co.uk we use TransUnion (formerly CallCredit) to provide you with your credit report so if you are member and you do spot any mistakes you can raise the issue via your account.
Alternatively, you can write to TransUnion (formerly CallCredit) at TransUnion, Dispute Team, PO Box 491, Leeds, LS3 1WZ. Please make sure that you include all supporting material (for example statements or letters from the lender involved).
By reviewing your credit report on a regular basis you will be able to find and fix any errors, and this may increase your credit score.
4. Watch Out For Fraudulent Activity
Have you noticed that something on your credit report does not seem right? If you spot anything that does not apply to you (for example a credit application that you did not make), and think you have been a victim of Identity Theft you should:
- Immediately report any lost or stolen credit cards, debit cards or documents to the issuing company
- Check your Credit Report for any accounts or credit applications that you were not aware of
- If you are contacted about credit agreements the you are not aware of, tell the company as soon as possible, they will advise you if you need to contact the police
- Keep a record of all material connected with the fraud; for example make a note of all of the calls and keep all letters and emails
- Contact the Royal Mail Investigations Unit if you suspect that your post has been stolen or redirected fraudulently. Contact the Mailing Preference Service to try to remove your name from mailing lists if you think your details are being used at another address
- Consider adding a Notice of Correction to your file which contains a password and instructions to lenders that they should decline any application that does not quote this password.
You should also report any fraudulent activity to Action Fraud.
For an administration fee of £20.00, Cifas - the UK's fraud prevention service - can place a 'Protective Registration' warning on your credit file. This will tell lenders that you think your personal information is at risk of being used fraudulently. When they receive an application with your details, they will make more checks to make sure the person applying is you and not a fraudster. It may mean that any applications you make are delayed while there is further verification of your I.D.
5. Check for Financial Connections
Check if you are financially linked to another person. If you have a joing account with a friend, family member or a spouse that has a poor credit score it may impact on your rating.
6. Pay Your Bills on Time
By not paying your bills on time you are likely to be damaging your credit score. Lenders like to see that you make your payments on time because it suggests that you are able to manage your credit.
If you are forgetting to make the payment on the due date, why not consider seting up a direct debit. This way your payment will be made on time and your credit score will not be damaged.
7. Don't Make Multiple Credit Applications
When you make a credit application, lenders need to determine your credit worthiness to help them make their decision on whether or not to lend to you. To help them do this they will request a copy of your credit history. This type of search is known as a 'hard search' and it is recorded on your credit report. It is normal to have a few hard searches on your credit report, but if you have made multiple applications within a short time period it may negatively impact your score. This is because it may give the impression that you are 'credit-hungry' and this can result in lenders not considering you for new credit.
If your credit application has been declined, instead of making more applications, wait a while before applying again.
8. Avoid Getting Rejected for Credit - Use an Eligibilty Checker
Before making a credit application, use an eligibilty checker prior to applying. Instead of running a 'hard search', lenders will run a 'soft search'. This allows lenders to see some details about your credit history, but because only you can see if a soft search has been carried out, it will not impact your credit score.
By using an eligibilty checker you will get an idea of how likely you are to be accepted before making the application. This way you may be able to avoid multiple applications because you can avoid applying for products that you are unlikely to be accepted for.
9. Use Credit Regularly and Responsibly
Appearing to be a low risk borrower to lenders may improve your credit score. You need to show them that you can manage your credit responsibly by paying back (on time) any money that you borrow. You can do this by using your credit card to spend small amounts and paying it off each month.
10. Don't Max Out Your Credit Cards
Be responsible and show lenders that you can manage your credit. Try and keep your credit usage low, ideally under 30% of your credit limit. So if you have a total credit limit of £5,000 try and keep your balance below £1,500.
11. Not on a Bill? Put Your Name on One
If you do not have your name on any bills, you are not demonstrating to lenders that you pay back reliably and on time.
To help build your credit score, maybe consider putting a utility bill in your name (for example your gas bill or mobile phone contract). As this counts as a form of credit, it may help build your credit score.
How to Build You Credit Score - Key Points:
- Be registered on the electoral roll
- Be mindful of changing addresses
- Review your credit report
- Watch out for fraudulent activity
- Check for financial connections
- Pay your bills on time
- Don't make multiple credit applications
- Use an eligibilty checking before applying
- Use credit regularly and responsibly
- Don't max out your credit cards
- Not on a bill? Put your name on one
Why You Should Check Your Credit Report >>
Editorial Disclaimer: This article was updated 08/08/2022
Opinions expressed here are the author's alone, and not those of any bank, credit card issuer or any other company. This article has not been reviewed, approved or otherwise endorsed by any of these organisations.