For a lot of people, credit scores are an unknown. They don’t understand why they are needed, what they are or how they can and often do impact their quality of life. Even though currently the UK seems to put less emphasis on credit scores than the other continents I’ve experienced, a good credit score will help in many ways including allowing access to certain financial offers, getting the best rates on future financing and in some cases services such as mobile phone contracts and utility services.
Depending on your circumstances, fixing your UK credit score can be easier than you think. The big agencies Experian, Equifax and Callcredit all follow similar guidelines to monitoring and scoring your UK credit rating. By following some simple steps, your UK credit score can become something that you can be proud of and something that will help you massively when reaching out for credit.
In summary, this guide on improving your UK credit score will cover the following areas:
- Debt Profile and Credit Usage
- Credit Applications
- Electoral Roll
- Good Credit Management Habits
- Aged Credit / Bank Accounts
- UK Credit Score Services
As a family we’ve lived in 3 continents so far and despite the laws and processes being very different, the basic principles of improving your credit standing appear to be very similar.
Debt Profile and Credit Usage
So this is probably the only part of the guide that if you’re already in deep, is something that there is no quick fix for unfortunately. The UK credit services like to monitor short term debt (credit cards, store cards, short term personal loans) and long term credit (mortgages, long term loans, car finance). If you’ve got a huge mortgage, all credit cards maxed out and short term personal loans coming out of your ears I’m sorry to say that there is no magic bullet for this. The good news is that as long as you are making your payments on time the impact isn’t as bad as you would think. The thing that will make a dent in your UK credit score however is if you are using more than 10% of your available combined credit card balances. Not everyone is in a position to have unused lines of credit and even if you rushed out to take on five new cards to give you some breathing space – the impact of the applications themselves would plunge your credit score down even further (we will talk more about this in the next section). It will recover slowly, but if you push yourself too far and start getting rejections, you may end up in a downward spiral.
Any time a credit check is run against you, it can leave an imprint. Sometimes these ‘soft checks’ leave very little behind other than an indication that someone made an inquiry, but other checks and the dreaded ‘credit declined’ activities can do some serious damage.
The simple strategy around credit applications is where possible, use a pre-check service that are becoming very popular. A pre-check will ask a series of questions about you, your circumstances and your current financial obligations. As long as you are brutally honest, they are pretty accurate and will usually result in a good indication of your success chances if you make a full application. If you match this approach with only applying for credit when necessary and not making a large number of applications in a short period of time, you should be fine.
A big part of a credit check is based on trust. Being registered to a property via the UK Electoral Roll system is a simple way of ensuring you are seen as less of a risk. If the system has a nice clear picture of your whereabouts and address for the last 3 years or so, you will be in good shape. If you have lots of gaps in your address history and many address changes – the system may end up working against you.
In simple terms, ensure you are on the UK Electoral Roll for your current property. This is often just a case of registering via your local council website and although it can take a few weeks to update, once you’re on and your credit score is updated to reflect – you should benefit.
Good Credit Management Habits
We mentioned earlier in the article that trying to stay below 10% of your total available credit card balance would put you in good standing with the credit agencies. To ensure that you’re getting the maximum benefit from your low balances though, it’s recommended that you setup regular and automatic payments. Missing payments will do serious damage to your score, so at all other costs – try to make sure you don’t miss anything.
Some people don’t have any credit – this in itself can be just as damaging as those that are over extended. In the eyes of the credit agencies, you pose the risk that you don’t actually know how to manage credit as they have no evidence. If this is the case a very simple and powerful way to improve your credit score is to take out a card.
Get a credit card with the biggest limit you can and then pick a recurring service or payment that you can afford to pay off each month and in full that is no more than 10% of the available limit. Something like Netflix works well as at less than £10 per month, you would only need a £100 card limit to make this work. The activity that this generates demonstrates good credit habits and over time should start to improve your score. Obviously, if you’ve got other cards – their available limits and balances would be taken into account also. If you qualify, you could even get a card that has a points or rewards scheme to give you a little bonus as you go.
There are easy to obtain credit cards that are often labelled as Credit Builder cards available that although having horrendous interest charges (something that if you ensure you pay on time and in full won’t affect you) will help in starting to build up your profile. If you go for one of these, ensure you never leave a balance and thus avoid the interest charges.
Aged Credit / Bank Accounts
As with the Electoral Roll information earlier in the article, UK credit agencies like to see history. History makes them feel more comfortable in establishing who you are and whether they can trust you. If you have accounts that date back many years, resist the temptation to close them. In today’s market where banks are all trying to tempt you to switch to their service and leave your old boring bank, it’s very easy to just go for the best deal and ignore your banking history. If you do move banks to get a better deal, consider leaving at least one account open with your old bank to show a longer financial history. The same can be said for old credit cards. I still have a card I used for a balance transfer and paid off in full a few years ago and it’s doing wonders for my credit score just being sat there, empty and unused.
UK Credit Score Services
Until recently, credit scores and credit agencies were a bit of a dark art. Now there are a number of ways to keep on top of your activity.
Although the agencies themselves offer at least some access to their free services where you can gain sight of your activity, I’ve been using Clearscore which is both a website and a mobile phone app. Clearscore works in the same way to the very popular US service Credit Karma. Once you provide it with some basic information it not only gives you a score indication but it provides a wealth of background information, tutorials for improving your score and offers a range of financial products that it believes would help build your score
A nice thing about these type of services is they are able to give you a report of the things (either good or bad) that are effecting your score. One thing of particular note is to ensure there are no mistakes on your report. If there are, you need to contact the relevant organisation or agency to have them updated.
Hopefully the information in this article will help you improve your UK credit score. We’ve looked at the areas that do affect you score and outlined some simple steps that you can follow to start improving your credit score. I’m clearly not a financial expert and this guide has been based on my own experience. I hope that this guide proves helpful and I welcome any comments or suggestions.