Top 10 tips to boost your credit score

Let's talk about a topic that might not be the life of the party but is crucial for your financial well-being: your credit score. Now, don't let those two words send shivers down your spine – improving your credit score (also known as credit rating) can actually be quite empowering and can open doors to financial opportunities you might not have considered. So, grab your favorite cup of coffee and let's dive into the world of credit scores, why they matter, and most importantly, how you can boost yours!

What are credit scores?

In a nutshell, your credit score/credit rating is a three-digit number that tells lenders how likely you are to repay your debts. This 3 digit number is derived from a credit report, which comes from your credit file that logs all your financial history and your previous situations of repaying money, taking note of it to give future creditors an idea of how likely you are to repay any line of credit that they extend to you.

Whether you're applying for a mortgage, a car loan, or even renting an apartment, your credit score can make or break the deal. Your credit score isn’t fixed either, it moves as you go through life and deal with different financial situations. So you may start off with a poor credit score, but with some conscious actions you can turn it into a good credit score.

For example, if you have a good credit score for 5 years and then miss a few key payments, your credit score could drop. However, this also goes the other way. If your credit score is bad, you can also build it back up.

A higher credit score usually means lower interest rates, better terms, and a larger variety of choice when choosing providers, while a lower score might leave you paying more or even getting turned down if you want to borrow money.

I don't just mean taking credit out here, borrowing money is essentially what you do if you have anything on finance, including a mortgage, car, or even a credit card, so the health of your credit score really is something to take into consideration when you're tackling your personal finances.

Where does the information come from?

The information is collected from your creditors from numerous financial institutions, such as banks, mortgage companies, etc. This information is collected by credit reference agencies. There are multiple credit reference agencies worldwide, but in the UK, the 3 main ones are Experian, TransUnion, and Equifax. Information about how you repay your bills is fed to these credit reference agencies, they then feed this information into your credit file, which feeds into your credit report, which then generates your credit rating.

You can get a free credit score check with all the major credit reference agencies. This information is about you, and you have a right to access your credit information.

What is a healthy credit score?

All credit reference agencies will have varying brackets for scores as they have their own scoring system, but above are the wide bands of what's good and what's not. Aim for a credit rating above 700, and you should be in the bracket of good. If you can get closer to 800 that's even better. If you have a poor score, you can work to boost it with tips from this blog.

Why does a good credit score matter?

Before we jump into the nitty-gritty of boosting your credit score, let's explore why it's so important. Sure, it's not as flashy as your Instagram followers, but it can significantly impact your financial journey. Need a mortgage to finally escape the rental cycle? A top-notch credit score could mean the difference between your dream home and endless apartment hunting. Planning to upgrade your car? A better credit score might help you drive away with a better deal on wheels. Landlords, insurance companies, and even potential employers might peek at your credit score too. So, having a solid score is like having your financial passport to opportunities, better deals and personalised offers.

Here are some of the big-ticket items that often require a solid credit score:

1. Mortgage: your ticket to homeownership and building equity.

2. Loans: drive your dream car without draining your wallet.

3. Credit cards: unlock rewards, cashback, and financial flexibility.

4. Personal loans: for that much-needed holiday, home improvement, or unexpected expense.

5. Renting an apartment: landlords want to ensure you're a reliable tenant.

6. Insurance premiums: secure better rates on auto and home insurance.

7. Phone contracts: some providers might check details of your credit file before giving you that latest smartphone.

8. Job opportunities: certain employers may use your credit history as a gauge of responsibility, they can also access it if you’re working in a highly regulated industry that’s prone to bribery such as finance.

Okay so we know credit scores are important, so how can you boost yours?

Top 10 tips on how to improve your credit score

1. Check your credit reports regularly

Firstly, you need to see your credit score from a reputable credit reference agency, then you can keep an eye out for errors and inaccuracies that could be dragging down your score. You could even spot any fraudulent activity. You can get a free credit report at Experian to see how you’re doing.

2. Pay your bills on time

Set up reminders, automatic payments, or dance around your living room in celebration of bill-paying day – just don't miss those due dates. A missed or late payment can knock your credit score back into the 2000s, and is a red flag for future potential lenders. Automate your bills where you can, and ensure there are always funds to cover them before any other expenses are made. Read our blog on how to budget money if you're struggling to pay your bills.

3. Reduce credit card balances

Aim to keep your credit card balances well below their limits, ideally below 30% – this can have a positive impact on your score. If you’re always going up to your limit, and not paying off in full, it can paint an irresponsible picture to potential future lenders.

Instead, say you have a credit card limit of £1,000 every month, only spend up to £300 on it, and pay it off in full. This shows you have the opportunity to access more money, but you're responsible enough to only take what you need and pay it back on time. As far as the credit scoring system goes here, you're on to a winner.

4. Avoid opening too many new accounts at the same time

Each new account can temporarily lower your score, so be mindful of how many you open in a short space of time. This is because its viewed almost like you’ve just been offered an additional line of credit, or other ways to spend money if you like, and you've not yet shown how you will handle this additional responsibility. Until you start to use this new account and prove this additional action isn’t impeding on your credit score, your score could take a hit. It doesn’t always happen, but if you try to open, say, 4 accounts within 2 weeks, it’ll be a red flag to a credit reference agency.

5. Diversify your credit mix

A healthy blend of credit types (like credit cards, loans, and maybe even a store card) can demonstrate responsible credit use – as long as you pay them back on time and in full to avoid any debt.

6. Keep old accounts open

The longer your credit history, the better – even if you're no longer using that card from your uni days. Again, it goes with this notion of you have the opportunity there, but you are responsible enough not to take it. Just make sure there are no automatic charges coming out of the account.

7. Pay off collections and debts

Not all debt is bad debt. As discussed above, when you have a line of credit such as a mortgage or a house, you will be in debt. It becomes bad debt when you cannot afford to pay it off in one go, and you're starting to be charged interest rates, or even worse, you're missing the repayment completely and not even meeting the minimum repayment balance.

This could not only damage your credit score but it could also wind you further and further into the debt trap, so if you do have any big debt you need to tackle, prioritise it and get it off your plate.

8. Limit credit inquiries

Whenever you apply for something new, your credit score gets checked. Every time it gets checked, it takes a small hit. Again, looking at this from the bigger picture – if your credit report is being viewed multiple times, it could mean you’re trying desperately to get credit, which, for a lender, is bad news. This could signal you’re in trouble, and if you’re in trouble you won’t be able to repay them.

Applying for new credit or loan can have an impact on your credit score, so avoid shopping for loans like you're at a clearance sale. The same can be said for insurance providers. Insurance providers regularly complete a credit check before offering you a policy, so if you're being sent multiple quotes from insurance companies when looking to insure your new car, they could be bashing your credit score.

9. Negotiate with creditors

If you're facing financial difficulties and struggling to make payments, don't be afraid to reach out to your creditors. More often than not, they're willing to work with you to set up a more manageable repayment plan, after all, they want their money back.

Negotiating with creditors and showing your commitment to resolving your debts can demonstrate responsibility and potentially prevent further damage to your credit score. Give them a call and see what you can work out.

10. Be patient and persistent

Improving your credit score takes time and consistent effort, so stay the course and celebrate your progress along the way. Make conscious moves when it comes to money, don't make any big splurges, and remember to monitor your credit report regularly.

You're now armed with the knowledge to turbocharge your credit score and unlock a world of financial opportunities. Remember, improving your credit score isn't an overnight feat, but each step you take gets you closer to those low-interest rates and the keys to your dream home or car.

Keep going, you’ll be building a strong credit score in no time.

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