How to improve your credit score

Your credit score is one of the tools used by lenders to help determine how risky lending money to you is. Generally, the lower the risk, the more eligible you’re likely to be for their particular credit card, loan, mortgage or service. So it makes sense for first time buyers to improve or build their credit score.

Your credit score (also known as your credit rating) is found in your credit report. It’s a good idea to check it before you apply for any type of credit, including a mortgage, so you know where you stand. It’s worth getting a credit report from credit reference agencies such as Experian and Equifax to assess your current status.

If things aren’t looking great, there are steps you can take to help improve it. It’s important to make sure all the information on the report is accurate, and – if it isn’t – take action. You can ask for any misinformation to be removed by contacting the lender responsible.

Worried about your credit score? Or, not sure if you have one if you haven't borrowed before? Here are five simple steps you can take to build up a good credit score:

While a credit card can be an easy road to out of control borrowing, for most people that’s not the case. In fact, you could consider taking one out as a credit-building tool. If you regularly make small purchases using the card then repay the balance in full at the end of the month, you could start to build a good credit history. This would help show lenders that you can responsibly manage credit.

Prospective lenders and credit reference agencies use the electoral roll to check that you are who you say you are, and you live where you say you live. Make sure your credit record shows the correct address details and you’re registered to vote at this same address. Simple, but this will improve your chances of being accepted for credit.

If you're not eligible to vote in the UK, you can add a proof of residency instead. Send at least two recent utility bills or a certified copy of your UK driving licence to credit reference agencies, in order to prove to them that you live here. Ask them to add a note to your report to verify this – it will help you get credit.

A missed repayment can stay on your credit report for up to six years. It’s a good idea to set up Direct Debits for any regular payments leaving your account, to ensure these go out on time, every time.

If you've made a late payment due to circumstances beyond your control (i.e. your Direct Debit wasn't set up in time), but you then made the payment as soon as you noticed, go talk to your credit or utility provider. Ask nicely and there’s a fair chance they’ll remove the black mark.

Evidence of stability counts towards a good credit score. Lenders feel more comfortable if they see evidence that suggests you’re financially stable. Though everyone's circumstances vary, and this may not all be achievable for you, be sure to bear in mind that the following things all help towards improving your credit score:

• living at the same address for a while
• being a homeowner rather than a renter
• being employed rather than self–employed
• being employed in the same job (with the same employer) for a while
• having the same bank account for a reasonable period of time.

If you’re a private tenant and you pay your rent on time, it’s now possible for you to use these payments each month to improve your credit score. This is thanks to a free scheme called the Rental Exchange.

How does it work? You pay your rent to a third party called Credit Ladder*, which in turn passes this money onto your landlord or letting agent. Credit Ladder then lets Experian know whether the payment was made on time. Not all landlords will be registered so you will have to agree this method of payment with your landlord.

The material contained in this document is for information purposes only and does not constitute advice.You should obtain relevant legal or other advice if you are unsure about the effect on you of any matter in this document.