Five top tips to boost your credit score

Confused by credit scores? You’re not alone – it’s a commonly misunderstood area of personal finance.

So before you start your search for a new credit product, such as a loan or credit card, find out more about your credit CV – and how to keep it in good shape.

When you apply for credit, lenders want to make sure you can afford to manage any new borrowing. To do this they usually calculate a credit score.

A credit score is a numerical value that represents your level of creditworthiness – i.e. how trustworthy you are when it comes to repaying any credit that you have borrowed.

People with a high score are usually seen as a lower risk, and therefore could be more likely to be get credit.

A “good” credit score depends on the scoring system used by the particular lender. Each lender uses different scoring systems and different scales.

For example, Experian considers:

• A score between 961 – 999 as 'Excellent'
• A score between 881 – 960 as 'Good'
• A score between 721 – 880 as 'Fair'
• A score between 561 – 720 as 'Poor'
• A score between 0 – 560 as 'Very Poor'.

Your credit score is a key indicator of your financial health, so it’s important to understand what it is and how your actions might affect it.

It's used by the provider or lender to help them to decide whether or not to approve your application for products like credit cards, current account or loans.

Keep in mind that companies also have their own internal criteria when making a decision, meaning that a high score doesn’t guarantee a successful application. However, there are still steps that you can take to give yourself the best chance.

When applying for a mortgage or another credit product, it’s important to think very carefully about your credit behavior in the previous six months.

"Think of your credit report as your financial CV," says James Jones, Head of Consumer Affairs at Experian. "You wouldn’t apply for a job by unearthing an old copy of your CV and sending it off without updating and improving it." The same should apply to your credit history, he believes.

Every check of your credit history will leave a footprint on your record, but only when you apply for credit will this affect your credit score. This means it’s a good idea to check your credit report yourself before you ask a lender to check your eligibility for a product.

This gives you an opportunity to make sure information is accurate and up–to–date before you apply. If you need to, you can improve your rating by filling in any gaps or changing how you’re managing existing credit lines.

"What any new lender is looking for is evidence that you can be relied upon to make payments on time, according to your agreement, and that you’re in a good financial position right now," Jones explains.

You can find out your credit rating at credit reference agencies like Experian, Equifax or get it for free, for life using Noddle from Callcredit.

1. Use some credit
   To impress a potential lender you’ll need to have a track record of using, but not being overly reliant on, credit. Paying your credit card, mobile phone or utility bills on time and in full all help to show them this. It’s also a good idea to try to keep regular credit card spending below 25% of the limit across your cards, advises Jones.


2. Register to vote
   Lenders use the electoral roll to confirm your name and address. Not being on it can reduce your credit score or cause delays.


3. Check your own credit report
   View and update your credit report before making an important application and dispute anything that you don’t agree with.
   
   Having lots of credit checks on your file impacts your score, so make sure that you are not applying to lots of different lenders for credit products.


4. Break old financial ties
   If you’ve applied for a financial product with a partner or friend in the past, potential lenders will be able to see this link and may consider their credit score as well as your own. If you no longer have shared products, you can contact the three credit reference agencies: Experian, Equifax (PDF) and Callcredit, and ask for any links to be broken.
   
   You should also consider closing old credit accounts if there is no balance, as this can also affect your credit score.


5. Explain unusual circumstances
   If you’ve missed a payment or got into financial difficulties because of illness or redundancy, you can add a 200 word Notice of Correction to explain this to lenders who view your credit report.
   
   Also moving home or changing job could impact your score for a short period, so be mindful of this when applying for new credit.