How is your credit score calculated?
How do credit cards work
A good way to raise your credit rating is to make lots of individual improvements to your financial life. Together these tweaks show credit reference agencies you can be relied on to repay what you borrow and may result in banks and other credit providers offering you better interest rates. Start with things you can fix immediately, like registering to vote and checking your credit file for mistakes or fraud. In particular, look for missed bill payments that you did in fact pay and mentions of accounts you never opened.
Steps you can take over the long-term include staying on top of bills by using text reminders and using a credit-building credit card to prove you’re a reliable borrower.
To improve your credit rating, first check your score isn’t being affected by errors or fraud. If you spot something, get in touch with the company who have made the error. They’ll let the credit reference agencies know and your file will be corrected. You can also add up to 200 words to your credit file to explain the situation to future enquirers.
Remove financial associations on your credit file between you and anyone whose poor credit rating could be hurting yours. If you don’t let all three credit reference agencies know that you’re no longer financially connected to that person, their debts could affect your rating. On the flip side, being linked to a responsible borrower with a positive financial history can make you look good.
Sign up to the electoral register to help credit agencies confirm your personal details. It only takes a few minutes.
Opt in to text alerts for your credit or debit card. Real-time notifications help you track and more easily control how much you spend, as well as prevent fraud, as illegal use can be flagged instantly. For more tips, check out our guide on protecting yourself from fraud.
The steps you take to boost your credit rating don’t have to be tackled alone. Speak to your lender about your situation if you feel you’re struggling to keep up with credit card repayments or if you’re having other financial difficulties. They may be able to help you get back on track with suggestions like changing due dates and taking the trouble out of remembering when to make repayments by setting up a Direct Debit.
Just remember a direct debit will only help if you have enough money in your account. Tactics like these can help you clear outstanding credit balances, which in turn will reflect positively on your rating.
Improving your credit rating won’t happen overnight, so be prepared to make longer-term changes to your finances.
First, do all you can to reduce your outstanding debt. This will signal to the credit rating agencies that you’re tackling any issues and working to improve your credit worthiness.
If you can, stay in one address for a long period. This shows stability on your part, which is something that lenders like to see. The more stable your life appears on paper, the higher your credit rating is likely to be.
It’s an obvious point, but it can’t be overstated: keep on top of bills, payments and contracts. Jot down debit dates in your calendar to make sure there’s enough money to pay the bills and you don’t go overdrawn or default on your payment.
Credit card applications are recorded on your credit file, and the more you make, the more likely lenders are to think you’re going through a tough time, which might make them reluctant to lend to you. Credit card applications generally stay on your file for a year, so only make as many as you need to, space them out and apply for credit when you’re in a financially stable situation.
There are specific credit cards designed to help you improve your credit rating. Using one responsibly over a long period can boost your reputation with credit reference agencies.
The trick to using one successfully is staying within your credit limit and making at least the minimum payment each month. If you don’t make at least the minimum repayments on time and stick to the limit all the time, it could in fact worsen your credit score – the exact opposite of your goal. Read more about Barclaycard’s credit-building credit cards.
Make your payments on time. Late and missed payments can affect your credit rating for up to six years, so make sure you pay on time.
Pay more than the minimum amount. Not only will this reduce your debt faster, but it could also shows prospective lenders how reliable you are.
Keep credit card balances to a minimum. Only spend as much as you can afford to pay back on your credit card to avoid accumulating unmanageable debt.
Check your credit report regularly. This will ensure you’re alerted as soon as possible should any mistakes or fraudulent activity occur.
Prematurely close down old credit card accounts. Some lenders don’t like customers to have unused credit, because they might suddenly use it all and struggle to pay it back. Closing an unused account could therefore be a good idea. However, if you’ve had an account for years and used it responsibly, it can be a great sign to potential lenders that you know how to manage your money. So, don’t close old accounts before considering both the pros and the cons.
Make too many applications for credit. Multiple lenders carrying out credit searches at the same time can affect your credit score and make rejection more likely.
Overburden your overdraft. Just like credit cards and personal loans, an overdraft is a credit agreement, so be careful to not exceed the limit.
Have no credit history. It might seem a bit unfair that lenders want to see that you’ve had to borrow money in the past before lending to you in the present, but it’s only because they want to see that you are a responsible borrower.
Don’t feel daunted by the challenge of improving your credit history. As long as you spend money within your limit and use a budget to pay back what you owe, your credit rating should gradually improve behind the scenes.
You can check your credit score for free with some credit reference agencies.