Before we get started on raising your score, there are a couple of things you should know about your credit score.
Credit Karma shows the credit score that has been calculated for you by TransUnion, one of the three main credit reference agencies in the UK. Credit Karma partners with TransUnion to give you access to your TransUnion credit score and report.
And remember, your credit report isn’t updated in real time by your lenders or account providers, so you may need to think about your finances over the last 7 weeks or so as you are looking at your credit report.
Some of best ways to build credit
Because credit is so complex and individual, building it can take time and patience. No matter what, the most impactful thing you can do for your credit is to create some consistent habits.
Here are some tips that can help you raise your score over time.
1. Check your credit report on a regular basis to track your progress
Keeping an eye on your credit is key to success. If you find any mistakes or inaccuracies in your credit report on your Credit Karma account, we can help you file a dispute with TransUnion. If your dispute is resolved by the credit reference agencies, you may see the error corrected, which can help raise your credit scores over time.
2. Sign up for free credit monitoring
Whether it’s with Credit Karma or someone else, keeping a close eye on your credit is essential. Credit monitoring can help alert you to important changes in your credit report, so that you can check for suspicious activity.
Fraudulent activity can weigh down what could be an otherwise good credit score, so it’s important to dispute any details you identify as inaccurate. If the credit reference agency rules in your favour, the fraudulent activity will be removed from your credit report, which could help raise your credit scores.
3. Figure out how much money you owe
Review all your borrowing, especially if you have more than one credit card, and come up with a plan to pay them off.
If you have too many credit cards to keep track of, you could also consolidate your credit card debt into one balance transfer card to make it easier to manage your monthly payments. Learn more about balance transfer cards here by reading our guide.
These strategies could help you pay off your credit card debt more quickly, lower your credit utilisation ratio and raise your credit score. So, choose the plan that works best for you, and stick with it.
4. Set up Direct Debits, so you never forget to make a credit card payment
This could help you develop a consistent payment history over time. It might not help you raise your credit score fast, but it could protect your scores from declining fast, which will likely happen if you miss a payment.
5. Pay twice a month
Instead of making one big payment at the end of the month, try splitting it up into smaller payments every two weeks. This could help you sneak in a few extra payments each year and save money on interest charges.
And the extra payments can help pay down your balance faster, lowering your account balances and credit card utilisation rate, which can raise your scores.
6. Diversify your credit mix
Your credit mix refers to the various types of accounts included in your credit reports. While it probably won’t make or break your credit scores, lenders typically prefer to see a mix of revolving credit accounts (i.e., credit cards) and installment loans, like mortgages and car loans.
The more you show you can manage different types of borrowing, the better. Of course, it’s not a good idea to take out a loan you don’t need just for the sake of adding some extra colour to your credit mix.
5 factors that affect your credit scores
As we mentioned above, there are several factors that go into determining your credit scores.
- Payment history makes up the biggest chunk of your credit score. That’s why it’s so important to make on-time payments each month if at all possible. Late payments can stay on your credit report for up to 6 years.
- Credit card use, or credit utilisation, is another important factor. This measures how much of your available credit limit you tap into at any given time. We recommend you keep this to less than 25%.
- The length of your credit history has an impact on your credit. This factors in the ages of your oldest and newest credit card accounts, as well as the average age of all your accounts. The older your credit, the better, because it shows lenders you have more experience managing credit.
- Your credit mix has an impact on your credit. This looks at the types of credit you borrow. Lenders want to see that you can balance revolving accounts like credit cards with instalment accounts like mortgages, car loans and personal loans.
- Your recent credit also has a small impact on your credit. This tracks your applications for things like new credit cards and personal loans with hard searches. The fewer, the better, but definitely no more than 2 in a 6-month period, or you risk hurting your score.
Pitfalls to avoid when working on your credit scores
When it comes to building credit, it’s easy to get overly focused on ways to raise your credit scores fast. The truth is that building credit takes time. So take a step back and make sure your strategy doesn’t do more harm than good.
Here are a few “don’ts” to keep in mind.
- Don’t apply for lots of new credit cards just because you want to increase your credit utilisation. Even though this might help lower your credit utilisation ratio, it could also make you look like a risky borrower thanks to multiple new hard searches on your report.
- For the same reason, don’t take out a loan just to improve your credit mix. Only apply for a new loan if you actually need it.
- Don’t carry a balance on your credit card just so you can build credit. Carrying a balance can lead to unnecessary interest charges, and it might actually hold your scores down by increasing your credit utilisation.
- Don’t cancel your credit card after you pay it off — unless you have a good reason to do so. Closing your credit card could hurt your length of credit history, so it’s better to leave it open, even if you’re not using it anymore. Of course, if having a card tempts you to spend more, or it comes with an expensive annual fee, you might want to rethink this conventional wisdom.