We are not debt advisors and, if you are experiencing financial difficulty, you can seek free debt advice from impartial sources listed at the bottom of this post.

Credit plays a huge role in adulthood, and it's something we’re usually not taught in school. So, imagine the surprise when you realise that a good credit score can affect everything from taking out a loan to renting a flat!

The good news is that although many things affect your credit score, improving your credit isn’t as hard as it sometimes feels. Bad credit is repairable, even if you’ve had negative experiences with credit card loans or other debts in the past.

Before we dive into our top tips for improving your credit, let’s answer some FAQs that you may have lingering about credit.

What is a credit score?

A credit score is a 3-digit number that is a subjective reflection of how trustworthy you are when it comes to borrowing money. Some lenders, like us, use this score to evaluate how likely a person is to consistently make payments and pay off anything they borrow.

Credit scores can range from very poor to excellent, and they might be influenced by a number of factors. These include:

● Your credit history

● The number of outstanding credit accounts you have

● A history of loan defaults, bankruptcy, and County Court judgements

● Not being registered on the electoral roll

● Holding joint accounts with people and their credit scores

● Your credit card usage

Ultimately, hundreds of factors determine your score, and it's impossible to know exactly how it's all working under the hood – and it varies between credit reference agencies.

Being mindful of how you use credit cards and loans can be helpful in improving your score. It’s important to not be over-reliant on credit cards, i.e. avoid withdrawing cash continually or using debt to “pay as you go”.

Credit File vs. Credit Score

You are likely to find two terms researching credit: your credit file and your credit score.

Your credit file is a report that details information about your credit accounts and credit history. It will contain details like whether you're on the electoral roll; court records such as county court judgements (CCJs) and bankruptcies and individual voluntary arrangements (IVAs); your account details such as banks, utilities, credit cards and mortgages; searches of your credit file (such as applications you've made for credit) and people you're financially associated with. Contrary to common myths, your salary and savings accounts don't show.

Meanwhile, your credit score is a reflection of the information found on your file.

Depending on your credit history, your score will vary. Lenders might look at your credit file alone, or your credit score, or a combination of the two.

It's good practice to review your credit file regularly to check for inaccurate details or misinformation. Sometimes, people’s scores suffer because of a reporting error, and they may be denied loans or other privileges based on false data.

So, knowing both your score and file are important parts of credit management!

Your score is just a guide. Different lenders look for different things. It's a good idea to use eligibility checkers before applying for credit.

5 Ways to improve your score based on what lenders look for

These 7 tips will help you give your credit a boost where it counts. Using our own process as a framework, we’ve compiled a list of key factors credit lenders look for in their applicants’ files.

1. Pay on time

Timely payments are usually imperative to a good credit score. Credit reference agencies, or credit-reporting bureaus, will always note when you do not make payments on time. Lenders can see this if they review your credit file, and it reflects poorly on your score as well.

If you are struggling with your current payments, even rent or housing payments, you could reach out to your lender to negotiate. Remember, it’s in their best interest that you can make your payments each month. They’ll often be willing to compromise and help you work within your means!

2. Avoid overspending

Stay within your credit limit and avoid charging more to credit cards when you have outstanding debts. While there are some expenses you may need a card for, make sure you pick your debts wisely.

If you spend close to or go over your credit limit regularly, this shows lenders you have difficulty managing your budget. This can make them apprehensive to increase your financial burden, which can result in denial of credit.

Plan your monthly budget out so you know exactly how much you’ll spend — both from your bank account and through credit. While regular card use is important, it should be done in moderation to avoid excessive debt, interest rates, and fees.

3. Check your credit report

Checking your credit report (that is, your credit file), can help you prioritise repayments and spot any misinformation. You can also get an accurate credit score, which will give you a good idea of where you stand with lenders and how to move forward with future applications.

There are three major credit reference agencies in the UK: Experian, Equifax, and Transunion. Each one of these agencies offers an annual report that consumers can review for free — at no harm to their score, mind you.

Each agency also sets their own standards for ‘fair’, ‘good’, and ‘excellent’ credit scores. Here’s a breakdown:

Experian:

● Fair: 721 to 880

● Good: 881 to 960

● Excellent: 961 to 999

You can check your Experian credit score for free using MoneySavingExpert.com's Credit Club

Equifax:

● Fair: 380 to 419

● Good: 420 to 465

● Excellent: 466 to 700

You can check your Equifax credit score for free using ClearScore

TransUnion

● Fair: 566 to 603

● Good: 604 to 627

● Excellent: 628 to 710

You can check your Equifax credit score for free using TotallyMoney

These agencies also provide detailed information on their websites to help you improve your credit score. For example, Experian Boost is a free tool that can help raise your score instantly.

If you see something that isn't right on your report, such as an unfair default or any other kind of error, you can dispute it. You can complain to the lender that put it on your report, or report it to the relevant ombudsman. Another option is to add a notice of correction to your credit reports where you can explain in your own words what happened.

4. Register to vote

It's simply much more difficult to get credit if you're not on the electoral roll. You can do this at any time on the UK Government website. You'll need your National Insurance number to hand.

You can opt out of the open electoral register which can be used for marketing, if you want to. Credit reference agencies use the full register.

5. Think carefully about linking your credit history through joint accounts

Borrowing loans with someone else can negatively harm your score if theirs is poor. You don’t want to pay for someone else’s bad credit, literally or metaphorically. So, consider carefully before opening joint accounts, and you may wish to avoid applying for joint mortgages or loans unless you both have good scores.

Joint accounts are a big responsibility, and even married couples may avoid them for a time until their scores improve. Be honest about your own score, and make sure you always trust the person when you apply for credit. If you split up with somebody you've got joint accounts or loans with, be sure to de-link your finances and speak to the credit reference agencies to ask for a notice of disassociation.

Remember, if they fail to pay, overdraw accounts, or make other errors, it can impact your credit history, too.

Be wary of applying for credit too often

Each time you make applications, it'll leave a mark on your credit file. If you do this too often, it makes lenders think you're desperate for credit.

For example, if you are about to apply for a mortgage, you might want to put off applying for other forms of credit. Be careful to prioritise applications.

Likewise, if you get rejected from a credit card, don't just move straight onto a new application. Consider your next move carefully and check your credit file. You might end up in a cycle of rejection if you keep applying for credit.

It can be a good idea to use eligibility calculators before applying for credit.

The Future Is Bright

With some patience and the right strategy, you can improve your credit score.. It does take time, so recognize that your efforts may take a little while to reflect on your file. Remember, your score is just part of the story – every lender has different criteria and some won't even look at your score, so the score alone is not the be-all and end-all!

That being said, we hope that this article has been helpful. At Knoma, we offer loans to help people fund their courses and kickstart their careers with the best education partners in the UK.

If you have any questions about borrowing from us or what we look for in applicants, reach out to us here or in our chatbot.

Whilst the information above has been designed to be helpful, please be advised that Knoma are not a professional debt advice service. If you are experiencing financial difficulty or are worried about your finances, you can seek free and impartial advice from an organisation such as Step Change (www.stepchange.org) or visit the Money Advice Service (www.moneyadviceservice.org.uk)