Improving your credit score might seem like an uphill climb, but it doesn’t need to be. Small changes can make a noticeable difference over time, helping you access better financial products with more favourable terms. Understanding the factors that truly influence your credit score should help you make more progress, sooner.
Payment history
Your payment history represents the largest chunk of your credit score, so consistently paying bills on time is crucial. If you’ve missed a payment, don’t fret. Settle any outstanding bills as soon as possible and ensure future payments are made on time.
Over time, a strong payment history should gradually help raise your score. Try to stay ahead of your bills by setting up automatic payments or reminders. It’s a little thing that could make a big difference in the long run.
Credit utilisation
This refers to the ratio of your credit card balances to your credit limits. Keeping this ratio below 30%, or as low as possible, is a smart way to show lenders you’re managing your credit responsibly. If your balance creeps above this threshold, it can suggest to lenders that you’re relying too heavily on credit, which can negatively affect your score.
For example, if the limit on your credit card is £2,000, try to keep your balance under £600. If that’s not possible, consider paying off your balance more frequently throughout the month. You can also increase your credit limit to offset this ratio, but that shouldn’t mean spending more if you don’t need to.
Length of credit history
The depth of your credit history is another important factor in your score, though it makes up a smaller portion of the total calculation. This means that the longer you’ve been using credit responsibly, the better.
So, if you’re new to credit, give it time. Build up a good record by repaying your credit cards on time and making repayments on loans without issue. When you come to applying for another financial product down the line, you should be in a better place.
Avoiding too many hard credit checks
Every time you apply for new credit, the lender conducts a ‘hard inquiry’ to assess your application. Too many of these in a short period can damage your score, as they suggest you might be struggling financially or trying to take on too much debt.
While it’s fine to shop around for the best deal, try to limit how often you actually apply for new credit. For example, if you’re applying for a loan, do so one at a time and when you’re sure it’s the right decision for you, rather than applying to several lenders at once.
Keep an eye on your credit report
Mistakes can happen, and they can hurt your credit score. Always check your credit report for inaccuracies and dispute any errors. You’re entitled to a free copy of your credit report from all the major credit reference agencies.
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