How To Raise Your Credit Score
- BetterAskAdam.com
- Feb 10, 2024
- 6 min read
Updated: Feb 23, 2024
When you apply for a loan, credit card or mortgage or more or less any kind of credit – the lender tries to work out how likely you are to pay back the loan or your credit card bill. They do that, largely by checking your credit score. It's not an infallible test and some of it might not be fair, in not accurately predicting how reliable you are - but nonetheless that is what most companies will rely on and it is worth, therefore, knowing how it works and how you might manage your score to improve your credit rating.
The credit score is made up of a number of core measures, and then some add-ons which each lender might be particularly interested in. Perhaps the most surprising thing is that the main credit score agencies, won't actually use a measure of how much you earn.
The main credit rating agencies which companies rely on are Experian, Equifax and TransUnion, although there are others.
There is s no one credit rating. Different credit reference agencies may give you different scores, based on their own way of judging things.
Reason Why You Have Conflicting Credit Reports
One of the reasons your credit reports may vary is because the agencies don;t know everything about you - they don't have a perfect view of the market or your boring habits. They only know what they have been told. So if you take out a loan or a credit card with one company - that company might not tell all the agencies about it - so some know more about you than others and that is reflected in their varying credit reports on you.
Another example of how your three credit reports may contrast is by the number of 'hard inquiries' that appear on them at any time. Lenders want to make sure you haven't suddenly applied for a lot of credit cards or loans, as that might be a sign that you are in financial trouble (even if that is not true, it can look that way.) So too many 'hard enquiries' can reduce your credit rating. But the credit card company might only pull one of your credit reports as part of their approval process, not all of them. As a result only one credit reference agency might downgrade your rating, while the others may not.
Credit report data is generally updated every month, but each lender may report updates at different times throughout the month. If your credit score was calculated toward the beginning of the month and then again toward the end of the month, the two scores are likely to differ.
Checking your credit reports from the credit bureaus should not affect your credit scores. When you check your credit report, a "soft" credit inquiry is posted to that report.
Experian put people into different bands as below:
0-560: Very Poor
561-720: Poor
721-880: Fair
881-960: Good
961+: Excellent
But different agencies will have different scoring systems
Because different credit rating systems will use different criteria, some ratings may be more or less affected by changes to behaviour. But here are some general ideas of how you might be able to either protect or improve your credit rating.
Ensure you are on the electoral register. From a basic point of view, this can be one of the simplest things to do to improve your rating.
On credit cards - keep your balance well below your limit. Keeping your balance at 25% of your limit would be great, if possible.
Making your repayments in full and on time can help prove to lenders that you are sensible with your money and can pay back what you borrow.
If you have multiple credit cards or a large overdraft, lenders may view this as a negative. If you already have access to credit, why would you need to apply for more? If you have credit cards you never use, it may help to close these accounts.
Having combined finances – like a joint mortgage or credit card – with someone else is called a 'financial association'. Lenders can view your partner's credit history when you apply for credit. If your partner has a poor credit history, this could well affect you and to protect your own credit score, it may be wiser to have separate finances.
Spacing out and limiting the number of applications you make may prevent this from happening. You can also ask your lender to run a ‘quotation search’ (instead of an application search) to help you compare rates - these do not leave a negative mark on your report.
The Difference Between Hard and Soft Searches
Soft credit searches are often based on information you supply for lenders to work out if you’re eligible for credit. You can make a soft credit check for car finance, personal loans or mortgages if comparing the best deal, for example. A soft credit search is unlikely to have any effect on your credit score.
Hard credit searches happen if you're making an application to a company for credit, and signing up to a credit agreement, they may look for more information from your credit report. This is known as a hard credit search. This may affect your credit score.
If in doubt - it may be a good idea to ask if your enquiry will lead to a soft or hard credit search.
Getting A Free Copy
You should be able to get a free, basic credit report from the 3 main providers. This is done online, but it's not your full credit report and doesn't usually contain a credit score. To get that - you often have to sign up. However - there is usually a free time-limited period trial membership - which you can try and then download your report from that.
Correcting Errors & Adding Notes
If there’s anything on your credit report that you think is misleading or needs explaining, you can ask for a Notice of Correction to be included.
A Notice of Correction is a short statement which you can use to add further information to an entry on your credit report. For example, you could use it to explain why you fell behind with the repayments on a particular loan or credit agreement. Any lender checking your credit report will see your statement and should take it into account when assessing your creditworthiness.
Credit Scores & Rent
I know people who have been very sensible with their finances but feel they are not able to get a good credit score, and therefore find it hard to get a mortgage, because while they have paid rent on time for years, their rent record has not formed part of their credit history. Unsurprisingly, they feel this is very unfair.
The situation is changing.
Equifax, says it's been collecting rent payment information from CreditLadder, the UK's largest rent reporting platform, since August 2019, and the information went live on Equifax credit reports on 5 March 2019. Experian, the UK's largest credit reference agency, has been including CreditLadder's rental data on Experian credit reports since October 2018.[1]
The BUT....
While this is great news for millions of people, there is a but. That's because as a renter, you may have to take more proactive steps to ensure your renting history is included. Experian have a product call Experian Boost which links your accounts and would help demonstrate that you have paid utility and some other bills on time, but doesn't include rent at this time. The product is free.
Equifax get rental data directly from specialist data companies, including: Creditladder, Bud, Inchora, Fea Card/Bits & Canopy.
As an example - Creditladder offers tenants the opportunity to report their rent payments to one of Experian, Equifax or TransUnion for free. However, it also offers paid plans to give you the maximum benefit by reporting to all four major Credit Reference Agencies.[2]
Creditladder will allow you to sign up for free too report to ONLY 1 credit rating agency. If you want them to report to all of them, it costs £8/month or £60/year.
Emma is another service which provides rent reporting, although is less well known
I've no experience of how useful/reliable these services are - but I'm happy to hear reports if you find them good or not.
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