How to improve your credit rating and credit score

Lenders look at your credit report when you apply for a loan, credit card, mortgage or any other type of credit account to see what you already owe, how well you're keeping up with your repayments and whether you can afford to borrow more. Your credit score often matters more than having substantial savings or income.

Checking your credit report with each of the three main agencies, Equifax, Experian and TransUnion can help you to improve your credit score because you can check how accurate it is and that it reflects your circumstances. If there are any errors or omissions, take the time to dispute your credit report and get it corrected.

Checking your credit rating regularly is recommended by the Home Office to help protect yourself against identity fraud. You might spot something applied for or taken out that was not by you. And any attempted frauds listed by CIFAS (the UK's fraud database) will show up.

If you have a good reason for any credit problems, for example if you were ill and couldn't make your payments on time as a result, you can add something called a Notice of Correction to your account. Potential lenders will be able to see this explanation - again, be prepared to provide proof.

Re-check your credit reports regularly to make sure they are correct and up to date.

If you haven't done so already, register to vote at your current address - lenders use the electoral roll to check that you live where you say you live, so it can help to improve your credit report.

If you aren't registered or are listed at another address, the lender may ask for further proof of your identity and address, or could even turn down your application.

And lenders prefer you to have stayed in one place for some time, rather than be changing address frequently.

Although energy bills, for example, do not appear on credit reports unless you miss payments and your arrears are sent to collections, they will help you with identity checks. Other bills, like broadband and TV, often do get reported and if you have a history of paying your bills on time it can help to improve your credit score.

If you miss payments or don't make them on time, as well as incurring penalties, a note will stay on your credit report for at least three years - which could give a bad impression to lenders.

Make sure you space out when you switch providers for household services like gas electricity and broadband, rather than doing them all at the same time of year. Each switch results in a hard search on your credit record and too many, too close together, worsens your score for a short time. So don't sign up to new contracts just as you about to apply for a loan or mortgage. Wait until after your loan has been approved.

But if switching energy or mobile provider will significantly cut your bill and make it more affordable, that remains be a sensible choice. Energy bills do not appear on your credit report but the hard searches firms do to check on your creditworthiness are recorded.

It can help to improve your credit score if you close any credit accounts you don't use. When looking at your credit report, lenders take into consideration the amount you could borrow, not just what you actually owe.

Also make sure you close any joint accounts you might have had, particularly if the other person is not good at managing money. Their behaviour could drag down your credit score.

As a rule, it's better to have a few well-managed accounts, than a lot of accounts that you don't use.

Consider consolidating your debts - identify which of your credit accounts are most expensive and see if you could consolidate them into a one, lower-cost loan.

This won't directly improve your credit score, but it could make your debts more affordable right now. If this enables you to close several credit accounts you struggle with, it could help improve your score as you'll have fewer accounts open.

Each time you apply for credit and a lender looks at your credit report, a record of their check called a 'footprint' is made. If other lenders see a lot of footprints on your account in a short space of time it may hurt your chances of getting credit.

Keep the number of footprints on your credit report down and it could help to improve your credit score.

Your credit report lists every application for credit you've made in the last year, so by checking this, you can make sure you don't reapply to a lender that has already rejected you.

Many people struggle to get the credit they want, not because they have a bad credit history, but because there isn't enough information on their credit report for lenders to go on. This is commonly called having a 'thin' credit report.

Lenders want to see evidence that you're a responsible borrower and if you haven't taken out many credit accounts before, this history won't be there.

One of the quickest ways to build up a credit score is to use a 'credit builder card' that will give you access to limited credit. If you manage this responsibly and don't miss any repayments your credit score should soon improve. Credit builder cards are best used in the short term (6 to 12 months) to build a credit history, paying them off in full each month as they have very high interest rates. You can soon move on to a better APR credit card.

It's also best not to borrow all your available credit at once – don't max out your credit cards. This gives the impression that you are desperate and are unable to control your spending.

Exercise caution when it comes to credit repair companies claiming they can improve your credit score.

Credit repair companies claiming that they can remove or change the data on your credit report often charge hefty fees and may not be able to deliver on their promises.

If you have a few zero-hour contract jobs, the income you have could be big enough to match the minimum eligibility criteria for some credit cards and other lending products. But the fact that your income is not fixed makes it harder to prove that you will be a reliable borrower.

Some lenders and credit card providers will make it less difficult for people with low incomes or without a fixed income to apply, but a permanent job is always better for your credit applications.

Check your credit report regularly for unfamiliar or suspicious entries, like a new account you didn't open, an increase in the amount you owe which you can't explain or new applications for credit you didn't make - these could all be signs that you've been a victim of identity fraud.