How to improve my credit score?

Highlight reel

• An excellent credit score can be one of the most important factors in ensuring a strong financial future

• Credit cards when used responsibly can greatly improve your credit score, we recommend visiting Capital One to learn more about how your first credit card can help you

• Having a good amount of credit available to you but only using a proportion, helps boost your score

What is a credit score and why should I care?

A credit score is a number associated with you based on your payment history to help lenders determine how risky you are to lend to.

The better your credit score the more likely they are to lend to you at a lower interest rate. This is vital in securing mortgages, loans and credit cards and can save you huge amounts of money over time, much more so than saving a few pounds here and there! Don’t believe me?

Say you want to buy a house that costs £200k (apparently you’re not buying in London). You haven’t been running a successful startup since primary school so you’re going to need a mortgage, let’s say it’s spread over 30 years. Here are two scenarios, one with poor credit and one with good credit:

Poor Credit: it seems quite risky to lend to you so banks will charge a higher interest rate on your mortgage. They’ve decided this will be 5.8%, making your total purchase price around £420k.

Good Credit: you seem like a lower risk investment. The bank has decided your interest rate will be 4.2% making your total purchase price around £350k, saving you over £70k, congratulations!

How to improve my credit score?

So you’ve checked your score and its not looking good but don’t panic, here are some simple steps to get you closer to the ‘Excellent’ zone.

1.) Pay bills in full every month - your credit score may be low for a variety of reasons but one is likely to be missed or late payments. This could be your phone bill, house utilities and yes, even that Netflix subscription. Just one missed payment can impact your credit for up to 6 years…

2.) Credit Cards - they can be intimidating at first but credit cards are the fastest way to boost your credit score. To get a great score, you need an excellent track record of making regular payments on time. Credit cards give you an excellent opportunity to do just that, you can use it for your weekly food shop, transport and utilities but remember rule number 1.) and ensure you pay the full amount every month to avoid any financial penalties. This can be done easily by setting up automatic direct debit payments to cover your spending each month so you don’t forget.

Be sure to use eligibility checkers before applying for a credit card as multiple unsuccessful applications will have a negative impact on your rating. For beginners, we recommend Capital One who can help you build up your credit even if you have a low rating.

3.) Use only a % of your available credit - your credit score is partly based on how much of your available credit you’re actually using. If you have plenty of credit available to you but you’re only using a proportion every month, this makes you look less risky from a lenders perspective. For example, your credit card limit is £1000 per month but you’re only using £200 (around 20% is roughly about right).

3.) Electoral register - when you register to vote, your electoral details are recorded on your credit report. This helps lenders confirm your name and address resulting in an increase in your score.

3.) Check your score - you can visit Experian and find out your credit score for free. They’ll show you exactly what’s hurting your score and share some tips to improve it. You can also get in touch with them to change any incorrect information that may be pulling you down.

4.) Other pitfalls - If you open a joint bank account or apply for a mortgage or loan with someone with a poor credit score, this can hurt your rating. Bankruptcy and County Court Judgements (when someone takes you to court because you owe them money) can also be massively damaging, it goes without saying but avoid if you can.

Please note that we (Diverse Hires Ltd) are not financial advisors, if you need one, please seek a professional.

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