Knowing how to build your credit score is important if you want to improve your chances of getting approved for credit.
Your credit score is a numbered rating that credit reference agencies give you based on the information they hold on your credit file.
It's a way of rating your financial behaviour. Lenders will scrutinise it every time you apply for any type of credit. Whether you're looking for a mortgage, loan or credit card.
It is very hard to improve your credit score fast or immediately. It will usually take weeks or months to see an improvement.
To improve your credit score:
You'll find it very difficult to be approved for credit if you’re not on the electoral register.
Being on the electoral register does not mean you have to actually vote. You just need to register, which you can do online or by post.
If you’re concerned about privacy, you can remove yourself from the open register. You’ll stay on the electoral roll, but you’ll prevent any third parties buying your personal details.
Before applying for any form of credit, take the time to look carefully through your credit file for any mistakes or fraudulent activity.
Mistakes on your credit file
If you spot any mistakes, like an incorrect address, get the credit reference agency to update your credit file.
There should be no difference between your credit file and the information you provide on your credit application. Any difference could impact your chances of being approved.
Fraudulent activity on your credit file
Contact the credit reference agency immediately if you see any activity on your credit file that you know you’re not responsible for.
Somebody could be fraudulently using your identity and building up debt which you’ll be liable for.
Make sure the credit reference agency adds a notice of correction to your credit file. This makes it explicitly clear that you were not the one at fault and means your credit score should not be negatively affected.
It’s important to pay back any credit you have on time, every time. That includes loans, credit cards and mortgage repayments.
Consistently paying in full will have a positive effect on your credit score.
Credit card debt
With credit card debt, paying the minimum amount is better than missing a payment. But doing it repeatedly will negatively impact your score because it suggests you’re spending more than you earn.
If you have lots of smaller debts spread across a number of cards, you could try consolidating them onto one 0% balance transfer card.
Or a 0% money transfer card if you want to consolidate some personal loans.
Having just one bill to pay will make it easier to keep a close eye on your debt, making it easier to start reducing it.
Without any credit, it’s hard to prove you can effectively meet your repayments. A lender has no evidence that you’re responsible with your money and can make your repayments.
Your mobile phone contract and other utility bills can help build up your credit score.
Get an interest free credit card
An interest free credit card will do the most to boost your score if you pay it off in full every month.
But think carefully about how much credit you’ll actually need. If you get a credit card limit of £1,000 but generally only use about £200, it could count against you, even if you pay it off in full.
Be careful. Going over your limit or regularly trying to extend it might make you look financially untrustworthy.
If you currently have, or have had joint credit with another person over the past six years, your credit file will be linked with theirs. This is known as financial association.
It will reflect badly on you if your financial associate cannot meet payments on time and has has issues with credit in the past.
Sadly, it does not work the other way round. If your financial associate has a better credit rating than you, your credit score is not likely to improve because of that association.
Ending a financial association
To end a financial association, you need to close the joint credit product you share with that person. Or move it to an individual account.
You’ll need to contact the credit reference agencies to add a notice of disassociation. This should prevent any of their future activity from having repercussions on your credit file.
Each time you apply for credit, it leaves a hard inquiry on your credit file. When credit providers check your credit file, they'll see your hard inquiries. You can negatively impact your credit score if you have too many hard inquiries over a short period of time.
If you do not have any credit yet, one or two hard inquiries will not impact your credit score too much.
If you already have a few sources of credit, it could be better to make full use of those instead of applying for more.
The impact of hard inquiries fades over time, and they are removed from your credit file after two years.
If you’ve undergone some form of court action, but it happened more than six years ago, this should no longer appear on your file.
It’s always advisable to check with all three credit reference agencies that it's been removed completely from your file. It is not always an automatic process.
If you’ve failed to make payments, usually over a 3 to 6 month period, a lender will close your account. This is known as a default.
Defaults are recorded on your credit report. They’ll decrease your credit score making it much harder for you to get credit in the future.
Unless a default was created in error, it will remain on your credit file for six years.
County Court Judgment (CCJ)
In some instances of missed payment, the lender might bring a CCJ against you. If you pay what you owe within 30 days of the CCJ being issued, it should not appear on your credit file.
If you do not pay within 30 days, the CCJ will remain on your file for six years.
Reducing the impact of a CCJ or default payment
You can try and reduce the impact by telling credit reference agencies why you missed payments in the first place. For example because of a long term illness or if you were made redundant.
They’ll add a note to your file that lenders will see.
But if you are now able to make repayments, doing so will help improve your score again.
If you have had to go to the extreme of declaring yourself bankrupt, that is a very difficult mark on your credit file to remove.
You can try and reduce its impact with consistently good financial behaviour. But you cannot remove it completely for 6 years.
Your credit score, or credit rating, is a number that credit agencies use to assess your creditworthiness. It’s based on the information found in your credit file.
Each credit reporting agency holds a credit file on you. Your credit file is a list of all the personal and financial records about you and your past behaviour with credit. In essence, it is your credit history.
There are three credit reference agencies (CRAs) in the UK that record your credit history in a credit file. Though the information they hold will mostly be the same, each CRA scores you differently:
This means you have more than one number that represents your creditworthiness. Some lenders check your credit file with just one agency to assess how risky you are as a borrower. Other lenders may check all three.
But in general, the higher your credit scores, the more likely you are to be approved for credit.
How lenders use credit scores
Although credit scores are a very useful guide for you as a borrower, lenders do not see the actual scores you do when assessing applications.
Lenders apply their own unique algorithms to your credit file data. The weighting and significance given to elements of your credit file will differ from supplier to supplier. The exact details of these algorithms are kept a secret.
A bad credit score means you might find it more difficult to get credit. That’s because it’s an indication to lenders of problematic financial behaviour. Things like being late with, or entirely missing repayments.
The three credit reference agencies (CRAs) each have a different score that they consider to be a bad credit score:
Lenders also have their own scoring system. They apply their own unique algorithms to your credit file data to determine if you have bad credit. The details of these algorithms are kept a secret.
The key thing to remember is having a bad credit score is not permanent. You can reverse it.
If you're in a lot of debt
If you’re in real financial difficulty and in serious debt, improving your score should not be your priority. First you should get out of debt.
There is plenty of free, impartial help available to you from debt charities like StepChange. There’s no need to go it alone.
When you apply for credit, lenders will look at the information you provide on your application form.
But they will also consider and assess the information found in the credit files that the credit reference agencies hold on you. This is called a credit check.
Before applying for any credit, it’s always advisable to check your credit file so you can see what the lender will see. And to make sure that all the information kept on your record is correct and up to date.
Your application will be rejected immediately if the credit issuer finds any differences when comparing it against official records like the electoral register. It’s crucial that the information you provide is 100% accurate and complete.
If your application is rejected at this stage, it’s not always because the lender thinks you’re a financial risk. The lender is just confirming you are who you say you are, as part of their legal obligation to prevent fraud and money laundering.
The specific information requested will depend on the type of credit you are applying for. But typically it will include things like:
The three main credit reference agencies in the UK are:
They each hold personal information about you and your credit behaviour over the past six years. This is called your credit file and includes:
1. Personal details
The credit reference agencies get your personal details from electoral register records. They include:
2. Financial associations
It’s important to think very carefully about who you take out joint credit with. Lenders will be able to see if you currently have, or have had, shared financial responsibility with someone over the past six years.
If a lender views any of your financial associations as having poor credit, this could have a detrimental effect on your own creditworthiness when you apply for credit.
Your credit score might not change. But the negative association can still affect your chances of securing credit in the future.
3. Other lenders’ searches
This is a record of other lenders who’ve searched your credit report in the past six years. This is called a hard inquiry.
Making multiple credit applications in a short space of time could indicate to lenders that you’re desperate for credit. Or that you’ve been turned down for credit it in the past.
What searches impact your score
You will affect your credit score if you apply for more credit, usually following a rejection.
Annoyingly, your file does not show if a lender accepted your credit application. An acceptance will not boost your score. But a rejection will not directly lower your score either.
Soft credit checks
You can prevent these searches from appearing on your credit file by using a soft search eligibility checker when applying for credit.
Soft searches leave no mark on your credit file. It’s used by lenders to work out the likelihood of you being accepted for credit before you start your application.
4. Bankruptcy/County Court Judgments (CCJs)/Court Notices
Any bankruptcy, Individual Voluntary Arrangement (IVA) filings or court actions are kept on public record.
They’re found on the Insolvency Register and the Register of Judgments, Orders and Fines. Credit reference agencies store all this information too.
Any recorded fraudulent activity in regard to finances is listed on your credit file.
6. Previous credit behaviour
Banks and other lending institutions provide information about your current and previous behaviour in relation to credit.
Your credit file also includes your history of repaying this credit, including:
If you want to see what information is held on you, you can request a Statutory Credit Report for free from the credit reference agencies. There are also online services that let you check your credit score for free, or as part of a paid subscription service.
Both the free and the subscription services show you the same information, but how often they update the information varies.
You can apply to each of the credit reference agencies independently and request a Statutory Credit Report. They’re obliged to send it to you for free.
This data is only updated on a monthly basis.
For fully up to date information, you can view your full credit file from all three of the credit reference agencies for free.
There are also free online services that let you see your credit score and file. Usually these free online services only update once a month.
If you want more regular updates, you should sign up for a paid subscription service. There is usually a free trial period for 14 to 30 days. You can cancel your subscription if you don't want to carry on using the service.
Edited by Christina Hirst
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Last updated: 18 September, 2019