Effective ways to build your credit score

Whether it’s a mortgage, financing a new car or simply taking out a loan, credit checks are increasingly an integral part of our lives where finances are concerned. A bad credit score can have significant implications when considering the above purchases, so how can you improve yours to avoid negative repercussions later.

According to Experian.co.uk a popular credit score checker and reporting site, 5 simple ways to improve your credit score are:

1. Prove where you live
   Register on the electoral roll at your current address – you can do this even if you’re in shared accommodation or living at home with your parents.
2. Build your credit history
   Having little or no credit history can make it difficult for companies to assess you, and your credit score may be lower as a result. This is a common problem for young people and people who are new to the country. Luckily, there are some steps you may be able to take to build up your credit history.
3. Make payments reliably
   Paying your bills on time and in full each month is a good way to show lenders you’re a reliable borrower, and capable of handling credit responsibly. Old, well-managed accounts will usually improve your score – although be sure to read about the potential impact of unused credit cards.
4. Keep your credit utilisation low
   Your credit utilisation is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%. Usually, a lower percentage will be seen positively by companies, and will increase your score as a result. If possible, try and keep your credit utilisation at 25%.
5. See if you could get an instant score boost
   By securely connecting your current account to your Experian account, you can show how well you manage your money. Credit checks will look for examples of your responsible financial behaviour, such as paying your Netflix, Spotify and Council Tax on time, and paying into savings or investment accounts. Visit https://www.experian.co.uk/consumer/guides/improve-credit-score.html to find out more.

It’s worth highlighting point number 2 – building your credit score. The easiest way to do this is via credit card usage, however not everyone chooses to use one, regardless of how low the limit may be. If this is the case, fear not, as there are alternative means of proving your reliability for making repayments. Without this ‘proof’ you may find yourself limited to finance products with higher Annual Percentage Rate (APR).

Alternative options to credit cards are:

1. Other forms of finance for example retail finance

Nowadays when you go to make an online purchase, you may see the option to pay in instalments via services such as Klarna. Also, some high street retailers offer 0% finance on goods. This simply helps to spread an initial cost usually over a specified and agreed time. By making those repayments in a timely manner, you are effectively collating proof/building a credit score.

2. Rent Reporting

If you are currently renting a property paying your rent on time each month is an easy way to showcase good repayments practice, however, unless you have specified with your landlord, it’s unlikely that you have been making the most of this opportunity. Experian offer a Rental Exchange for Tenants scheme that allows you to use your rent payments as a means of building your credit score. More information can be found here.

Things to avoid when trying to improve your credit score for borrowing/lending approval:

• Avoid payday loans – not only are the interest rates sky high, but evidence of them on your credit score will likely go against you, as they are viewed as haphazard financial decision-making by most lenders.
• Missed/late bill payments – keep a log of all your utilities and even mobile phone contracts, as missed payments can add negative markers to your rating. Where possible, it’s advised to pay via Direct Debit to avoid this outcome.
• Using all your available credit each month – credit should be seen as back up for when the unexpected occurs or a means to top up your existing available funds. By using your full allowance each month will appear that you are overly reliant on credit.
• Making too many applications in a short amount of time – whilst taking out several manageable amounts spread across different lenders may appear to be a good idea, in theory you are simply maximising your risk potential, thus ultimately lowering your score.

For more advice and tips on how to check your current rating and easy ways to increase it, visit https://www.moneysupermarket.com/credit-monitor/what-affects-your-credit-score/

Please note that BRI does not directly advise on matters relating to borrowing or credit, but we can signpost you to those who can advise you directly.