How to Fix & Improve A Bad Credit Score – Guide

How to improve your credit score

A bad credit score can sometimes feel like a weight on your shoulders. Those three little numbers can greatly impact finances and lifestyle, affecting everything from holidays and car purchases to where we live and how we deal with a financial emergency. These days we are bombarded with talk of credit scores and reports, which act as a constant reminder of how important they can be. But we’re rarely advised on how to fix a credit score that is holding us back.

The Money Shop experts have put together this in-depth guide to help you find out more about your credit file, including top tips on how to fix your credit score if you think it could be preventing you from securing much-needed finance or better credit deals.

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What is bad credit?

We have all heard of bad credit, but what does the term mean? Bad credit is a broad term that refers to bad credit scores, poor credit history or a credit report that is less than complimentary when it comes to your financial past.

Your questions, answered

To determine whether you have a bad credit rating, you will need to contact one of the three credit bureaus – also known as credit reference agencies – operating in the UK. Each bureau holds a copy of your credit file which will include details of your credit history. Each credit bureau has its own version of your credit file. While it is unlikely to be completely different to that held by other agencies, some lenders will only report to one bureau, which results in each one holding a slightly different record. What’s more, each credit bureau will use different – and in some cases, multiple – models for analysing your credit history. This means you could have three different versions of your credit report but dozens of different credit scores that lenders can use to assess your creditworthiness. While this may feel overwhelming, there are still ways of drilling down into your credit history. Begin by contacting each agency to get a copy of your credit file. You can then request multiple credit scores from each agency to give you an overall idea of your credit score. 

While no borrower has a definitive score, your average score (based on the scale each model offers) should give you a clearer indication of where your credit status lies compared to the general population. If you are consistently being flagged as having only satisfactory or even poor credit, you must take steps to improve your score. Doing so will help prevent it from affecting your ability to apply for credit in the future successfully.

There is no set rule or definitive method when it comes to fixing bad credit. Each credit file will have its own positives and negatives, so you should take the time to identify the biggest issues on your report before creating a plan to fix your score. However, to help you get started, we have listed some of the most common approaches consumers take when tackling their poor credit history.

1. Check your credit report regularly

It is free and simple to check each of your credit files, so it is worth checking them regularly. By keeping a close eye on your credit history, you can gain a better understanding of what activities are boosting your score, as well as the behaviours that are lowering it. There are many different types of financial activity included on your report, so this should help you keep track of your financial position. Some of the most important activities to track are your payment history (such as bill payments), your total credit limit, your long-term history of credit use, the types of credit you use and the number of accounts you have. Your history will also include notes on the number of credit applications you have made and whether they have been approved or rejected.

2. Avoid missed payments

As your payment history is one of the major aspects of your credit score, it is crucial when fixing a bad score to keep on top of your bills. Missed and late payments can significantly impact your score and often incur a penalty fee that will increase your debt further. A handy way to keep on top of payments is to set up an automatic payment, such as a direct debit, that will leave your account at the right time each month. You will need to play the only role to ensure you have enough money in your account when the money is due to leave. Lenders like to see consistent, timely payments as it indicates reliability and a steady income; this can give your credit score a significant boost in a matter of months.

3. Reduce your debts

Although this is a long-term option, reducing debts is a simple, highly effective way to tackle bad credit. Another of the most important factors in your credit history, the level of credit you are currently using – or your credit utilisation rate – may suggest to lenders that you are living beyond your means or unable to support yourself financially. Most experts suggest that you should use no more than 30% of your credit limit at any one time, so focus on reducing those debts. Begin by pausing your spending where possible so you can lower your utilisation, then work on paying off your full credit card balance each month. The more you reduce your debts, the greater your chances of convincing new lenders to approve your applications.

4. Avoid having numerous credit accounts

While a low credit utilisation rate is important, it can be overridden by an excessive number of credit accounts. Having numerous accounts available to you can often result in lenders viewing you as high risk as you have the potential to access large sums and could take on significant debt very quickly. If you have several unused accounts open, begin by closing anything that is already empty. You can then slowly pay off the smaller debts until you can focus on just one or two credit accounts. This will also make your debts feel more manageable as you won’t be juggling many accounts or widespread debt.

5. Avoid new credit checks

When you apply for a new form of credit, you are likely to face a credit check or a ‘hard inquiry’. Not all forms of credit require a check, but those that do will leave a mark on your record, no matter whether you are rejected or approved. If your credit history shows you have made many applications in recent months, lenders may consider you a greater risk as you will appear desperate for extra cash. Even more concerning for lenders are multiple applications to different sources, which can suggest frequent rejection. Soft inquiries, such as checks made by you or by lenders hoping to give you pre-approval, will not affect your credit score.

4. Fix any mistakes in your credit report

Lenders can make mistakes that lead to a black mark on your credit report. Many borrowers who avoid checking their credit score miss these mistakes and are subsequently penalised unnecessarily for an error that can be fixed with ease. When checking your file, look for anything unfamiliar or an account that has been the subject of a dispute. If a lender has failed to update a file, or if you feel a lender’s report paints your financial activity in an unfair light, you can have this mistake fixed.

To avoid being penalised for mistakes, you should regularly take the time to contact each credit reference agency and get a copy of your credit file. By working through your history as frequently as possible, you can flag up any mistakes quickly and avoid any negative impact on your scores.

If you spot an error on your credit report, you have two main options: apply to the lender to have it removed or deal with it directly by filing a Notice of Correction. Each route has its pros and cons, so it’s important to decide which approach is right for the mistake in question.

As there is no universal credit score or single hub for holding credit information, it is easy for mistakes to be made. Some lenders will fail to update files once a dispute has been settled, while others may not update your credit report at all. It is also possible for incorrect information to be added in error, resulting in significant damage to your credit score.

A Notice of Correction is a short statement that you can add to individual items on your credit report. The statement should briefly explain why a debt included in your credit file is not reflective of how you generally manage your finances. If a lender performs a credit check in the future, they are legally obliged to read the note to take this information into account. However, they are not legally obliged to do so, and it is not guaranteed to influence their final decision on whether to approve your credit application. If the item flagged is clearly a one-off incident, a Notice of Correction could prevent the issue from affecting your future applications. On the other hand, adding a note to multiple items that demonstrate a consistent pattern of missed payments or penalties is unlikely to have an impact on your score.

The amount of time it takes for you to fix your credit score depends on how low your score is, the cause(s) of your poor credit history, your current financial situation and how much work you put into fixing your credit. You can take some approaches that will have an almost immediate impact on your score, such as signing up for the electoral roll or fixing mistakes on your file. However, paying off debts and improving your payment history will take longer as lenders will be looking for consistency and long-term reliability.

Some of the methods you can use to rebuild credit will impact all your credit reports and all your credit scores. However, the number of scores impacted by your progress will be largely dictated by the lenders you have used. Each lender must report to at least one credit reference agency or bureau, but they are not required by law to report your credit history to all three. As a result, any credit file that lender does not update will not be affected if you pay off related debts or close unused accounts. By changing your borrowing and spending behaviour, you will likely impact your scores by demonstrating your reliability to your lenders. Additionally, you can contact future lenders to find out what credit report they will be accessing if they conduct a credit check. This means you can choose your future credit lenders based on the score they will see and increase your chance of being accepted by selecting the most favourable version of your history.

It may feel like your credit report contains in-depth details about every aspect of your life. Thankfully, this is not the case. Your report only contains information about your credit and debt activity, as well as a small amount of identification information. Some of the information that isn’t included in your report includes:

  • Your marital status.
  • Your employment status, including details of your income.
  • Your education history.
  • Your medical history.
  • Your criminal record, unless related to your debts.
  • Your bank balances.
  • Details of your shopping habits.

Yes. It isn’t always as easy to borrow money when you have bad credit, but there are still many options available to you. One of the most common options available to those with a poor credit history is a high-interest rate credit card. High-interest rate cards, or bad credit cards, are specifically designed to provide credit to people with a poor credit score. Many lenders will offer this type of card, but you are more likely to secure approval if you can demonstrate that you are now financially stable.

It is possible to take out a short-term loan which can help you bridge a financial gap between paycheques, even with bad credit. At The Money Shop, our broker partner makes it easy to check whether you will be accepted for a 24-hour loan. Using an eligibility checker, input the amount you would like to borrow, and our representative example will show you how much interest you will pay. We will also give you details of your proposed repayment schedule so you will know in advance how much you would have to pay each month. If you feel confident that you can meet the repayments, a fast loan could be the best way to get the money you need with bad credit. As a short-term loan broker, our partner’s panel of lenders consider factors beyond your credit score, so you have a greater chance of getting the cash you need. Contact our customer service team to find out more or fill in our application form if you think you are ready to take out a loan through The Money Shop.

If you want to find out more about alternative loan options or credit choices for people with bad credit, click on the links below to explore more of our in-depth guides. Alternatively, contact our Customer Service department seven days a week to learn more about how our lending process works.