A Credit Score in the UK is a 3 digit number which is used by money lending organizations to calculate the odds of how likely a loan will be repaid on time. The higher the credit score of an individual, the easier it will be to avail a loan. Many people do suffer from a bad credit history. However, there are ways to go about how to improve your credit score in the UK over time. Some of the steps you can take to increase your poor credit score is listed in this article.
How are Credit Scores Calculated in the UK?
A credit score is calculated by using a complex mathematical algorithm combined with the information provided from the 3 main credit reporting agencies. Most credit scoring models take into account certain factors pertaining to the individual which are listed below.
- The entire payment history of clear credit cards and loans of an individual.
- The duration taken for the individual to pay back the previous loan amounts.
- The frequency of which the loan amounts have been paid back.
- The amount of revolving credit regularly used by the individual.
- The frequency of how often the individual applies for new Credit or Loan.
- The types of accounts the individual has and for how long they have been open.
Steps for How to Improve Your Credit Score in the UK?
An individual can check their credit scores online. They can also check the information on what factors affect their credit score the most, referred to as risk factors. These risk factors can help the individual make positive changes and improve their low credit scores.
The payment history and credit utilization ratios make up 70% of a credit score which makes these 2 factors largely influential, remember that a credit score reflects credit payments patterns over time. When going about how to improve your credit score in the UK, keep the following in mind.
1. Pay Your Bills on Time
Make sure that all bills are paid on time, not just credit card bills or student loans but all bills such as rent, utilities, phone bill, etc. It is advisable to use certain resources and tools to your benefit as you go about how to improve your credit score in the UK. These tools come in the form of automatic payments, calendar reminders or email notifications to make sure you pay your bills on time every month.
In case you have defaulted on making payments, clear them as soon as possible because late or missed payments are displayed as negative information on your credit report and will reflect for upto 7 years. Keep in mind that older late payments have a less effect than more recent ones.
2. Keep Balances Low on Credit Cards and Other Revolving Credits
The credit utilization ratio plays an important role when going about how to improve your credit score in the UK. The credit utilization ratio is calculated by using all credit card balances and dividing the amount by your total credit limit. People with good credit scores have a very low credit utilization ratio which means that they have not maxed out their credit cards and signifies to lenders that they know how to manage their credit well.
Lending organizations generally prefer low ratios of 30% or less. The 2 main ways to positively impact your credit utilization ratio is listed below.
- Pay off existing debt and keep credit card balances low.
- Become an authorized user on another person’s account (as long as they use credit responsibly).
3. Open New Credit Accounts Only when Needed
Taking unnecessary credit can have a large impact on your credit score in multiple ways. Creating too many hard inquiries on your credit report can tempt you to overspend and accumulate debt in a short span of time. Do not open credit accounts for the sake of having a better credit mix, it will not improve your credit score.
4. Do Not Apply for New Credit Excessively
When going about how to improve your credit score in the UK, remember that obtaining a new credit card does increase your overall credit limit. However, the act of applying for credit itself does create a hard inquiry on your credit report but if there are too many hard inquiries done, it can have a negative impact on your credit score.
5. Dispute Any Inaccuracies on Your Credit Reports
Always check your credit reports from all 3 credit reporting bureaus (TransUnion, Equifax and Experian), search for any inaccuracies and verify that the accounts listed on the reports are precise.
If you happen to come across any errors, you must dispute the information and correct it as soon as possible as it can have a negative impact when going about how to improve your credit score in the UK.
How Long Does It Take to Rebuild a Credit Score?
The duration taken to rebuild credit history after a negative change largely depends on the reasons for the change. When going about how to improve your credit score in the UK, remember the following.
- Delinquencies remain on your credit report for up to a period of 7 years.
- Public record incidents also remain on your credit report for 7 years. However, in the case of bankruptcy, it may reflect for up to a period of 10 years.
- All other inquiries will remain on your report for a period of 2 years.
When going about how to improve your credit score in the UK, recognize that rebuilding your credit score can take time, do not be in a hurry. A good way to start is by checking your Fair, Isaac and Company (FICO) Score from Experian. Review the individual factors that affect your credit score and research more ways of how to build up your Credit Score.