How to get a good credit score (and why you should care)

5 July, 2021

First of all, if you’ve decided to read this blog – congratulations, you’re already taken the first step to good financial health, and that’s being proactive enough to care about it! 

One of the biggest causes of stress and anxiety is money trouble, which is why getting into good habits and making good financial decisions as soon as possible is one of the best things you can do for your overall well being. But if you’re reading this and you don’t think you’re good with money and you don’t really know where to start, then here are some tips on how to get your credit rating in a good place for the future.

Why does a credit score matter?

A credit score is what companies and lenders look at when deciding whether or not to lend you money, or to give you products or services on credit, like getting a mobile phone on a contract, for instance. 

A credit score is effectively a number attributed to you, which lenders can see when they run a credit check to decide whether or not you’re someone who can be relied upon to keep on top of repayments. This matters because there are many important purchasing decisions in your life that will rely on credit checks. These can include:

  • Mobile phone contracts
  • Setting up bank accounts
  • Arranging an overdraft
  • Getting a credit card
  • Getting insurance (for home, contents, car etc)
  • Buying a car on credit (or anything on credit for that matter; furniture, home appliances etc)
  • Mortgages
  • Loans 

So how can I improve my credit rating?

There are many ways to do this, however here are three of the main ways you can help (or hinder) your credit rating…

1. Pay your bills on time

This is the most obvious – but most important – thing you can do to prove to lenders you’re trustworthy with money. The best way to do this is, firstly, don’t commit to expenses you aren’t in a position to repay. Put simply, don’t spend what you can’t afford. Secondly, for any regular outgoings make sure you set up a direct debit to have these paid off on time. The best way to do this is to set these payments to leave your account the same day your wages come in. That way, when you’re looking to see what you’ve got to spend for the week/month, your bills are already taken care of. 

2. Get on the Electoral Register

Whether you intend to vote or not, getting on the Electoral Register (or Electoral Roll) impacts your credit rating because it allows interested parties to confirm your identity, which is important to avoid issues relating to identity theft or fraud. The more confident you are who you say you are, the more confident they’ll be in lending you money. The legal age you can register to vote differs by country, but you can check with your local Electoral Registration Office to find out if you’re eligible here

3. Get a credit card but use it wisely

While getting a credit card can be a great way to boost your credit score, it comes with a massive caveat: use it wisely, or it can have the opposite effect and make you unattractive to lenders. It’s incredibly easy to rack up debt on a credit card- but not so easy to pay that debt off. Especially once any interest-free periods have expired. The APR (Annual Percentage Rate – which basically means the interest rate, this is the amount added if you don’t repay what you’ve spent within the month, so make sure you pay it off as soon as possible otherwise you could be charged much more). This means you can be taking one step forward and two steps back with every repayment, and ultimately it means you’re paying off more than you were lent on the credit card in the long term. The best way to use a credit card is to use it very, very little, and repay it in full, each month (TOP TIP: set up a direct debit to ensure you don’t forget). A good rule of thumb is to never put more on your credit card than you can afford to pay off with the money you currently have in your bank account. By repaying a credit card in full each month, you’re showing lenders you can be trusted with loans.

What isn’t included in your credit score?

It can feel a bit like every little transaction can make or break your credit rating- and you might be worrying that other mistakes you’ve made in the past might affect your ability to do (and buy) things you want. But there are actually lots of things which aren’t checked in assessing your credit score…

  • Student Loan repayments
  • Parking fines 
  • Your salary (although your lender may ask you for this separately)
  • What’s in your savings account
  • Whether you’ve checked your credit rating before
  • Your criminal record
  • Gambling activity
  • Council tax payments (although it’s worth bearing in mind that students don’t have to pay council tax)

You might have noticed that a lot of these things sound like things you don’t really think about until you’re a bit older – but don’t make the mistake of thinking that a good credit rating isn’t something you need to worry about right now. If you’re only just starting to think about getting your finances in order when you’re looking to buy a house, you might end up missing out on opportunities other people have, simply because you don’t have a good track record with money. 

The bottom line is this, though: you want to prove you can be trusted with the little things, so that lenders will trust you with the big things. In essence, all you need to do is not spend more than you can afford, and repay back anything you borrow- and do so on time. Getting into these habits as soon as you can not only help set you up for the future, but will help avoid any stressful situations where you can’t keep on top of loan repayments.

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