Firstly what is a credit score?
There are lots of types of credit agreement, ranging from a mortgage or credit card to a new mobile phone contract.
Any time you take one out, the finance provider will first check whether it thinks you will be able to repay the money you borrow or meet your monthly bills.
It does this by looking into a number of things about you, like how much you earn, what other borrowings you have made, and whether you’ve been able to meet repayments on other forms of credit.
Taken together, these factors are used to make up an overall score.
Once a credit score has been calculated, the company will then decide first of all whether to offer you any credit at all.
Then, if they decide they can lend to you, the company will work out the annual interest rate it is going to charge you to borrow.
Credit reports are compiled by credit reference agencies – the three main agencies in the UK are Equifax, Experian and TransUnion (formerly Callcredit). There’s no such thing as a universal credit score. Each lender has its own system in place to decide whether or not to accept you as a customer, meaning you could be turned down by one, but successful with another. To give you a better idea of how your application might be viewed by lenders, credit reference agencies produce their own version of your credit score. The higher this number, the higher your chances of getting the best credit deals – but a good score from a credit reference agency is no guarantee that your application will be successful.
The first step to improving your credit score is understanding how it’s set.
All the leading credit rating agencies (CRAs) base their credit scores on a similar set of criteria. That’s because they’re all assessing your credit history – how you’ve managed money over the last few years.
Here are some of the factors that can harm your credit score:
- a history of late or missed payments
- going over your credit limit
- defaulting on credit agreements
- bankruptcies, insolvencies and County Court Judgements (CCJs) on your credit history
- making too many credit applications in a short space of time
- joint accounts with someone with a bad credit record
- frequently withdrawing cash from your credit card
- errors or fraudulent activity on your credit report that’s not been detected
- not being on the electoral roll
- moving house too often.
8 simple steps to improve your credit score
- Pay your loans and bills on time
Consider setting up direct debits and schedule loan repayments for your pay day.
- If you move house or update your contact details, notify lenders
Advise lenders, phone and utility providers of your new email or physical address so they can re-direct bills to your new address. If you don’t pay these bills, a credit infringement or overdue debt could be listed on your credit report.
- If you are having trouble meeting repayments
Talk to your credit provider who may assist.
- Keep track of your credit record
Proactively manage your personal credit report by regularly checking your credit report. You can obtain a free credit report each year.
- Get on the electoral roll
Getting on the electoral roll will improve your chances of being accepted for credit. This is because prospective lenders and credit reference agencies use this to check you are who you say you are, and you live where you say you live. Ensure your credit record shows correct address details. Living at the same address, being employed in the same job (with the same employer) and having the same bank account for a reasonable period will also help.
- Build your credit history with a credit card
If you’ve never had credit before, it’s difficult for a lender to assess you. Consider taking out a credit building credit card and make a couple of purchases on it each month and then repay the balance in full at the end with a direct debit to build a good credit history. This will show that you can responsibly manage credit.
- Space out your credit applications
Credit reference agencies don’t get told if you are rejected for credit, but a note is made every time a credit search is made by a lender. Don’t use a scattergun approach when applying for credit. The more credit searches carried out in a short space of time, the less likely you are to be accepted for credit. Space out credit applications and, if possible, try to find out whether you’re likely to be accepted before applying. Do not apply for products unless you really need them.
- Take out a prepaid card to repair your credit
Credit builder prepaid cards can help you improve your credit rating. They charge a monthly fee (about £5) which is in the form of a small loan, which you’ll need to keep paying for 12 months, but at the end they will add an entry to your credit file that you have successfully repaid the debt. A prepaid card doesn’t require a credit reference as you don’t borrow funds on it.
- Pay your loans and bills on time
How long does it take to improve your credit score?
Improving your credit score won’t happen immediately. Even information like opening a new bank account or successfully applying for a credit card can take up to 90 days to be added to your credit report. It’s best to view your credit score as a process where you’re always acting in a responsible way, to make it healthier over time.
How to check my credit score for free?
You now have a legal right to access your credit report for free from any credit reference agency. These statutory reports offer a snapshot of your credit history and don’t include a credit score. But the three main credit reference agencies all offer more comprehensive services for a monthly fee. These provide unlimited access to your credit report, plus extra features, such as a score and alerts when major changes are made to your report. However, it’s now possible to access both your credit report and score without having to pay for a subscription.
Free credit scores from Experian
Experian offers new customers a free 30-day trial of its CreditExpert service, which gives you access to your credit report, score, and email alerts about any changes on your file. After the trial ends, it will cost you £14.99 a month. You can access your Experian credit score through a free Experian account. This is designed to help people shop around to see how they can save money by comparing credit deals based on their financial profile. Once you’ve signed up, your score will remain free to access, but unlike the paid-for CreditExpert service, you won’t be able to see your credit report. To be able to access both your Experian credit report and score free forever, you can sign up to the Money Saving Expert Credit Club. You can also see how likely you are to be accepted for the best rates on cards and loans and work out how much you can afford to borrow. Unlike CreditExpert, you won’t receive alerts about any changes to your report.
Free credit scores from Equifax/ClearScore
Like Experian, Equifax offers a free 30-day trial of its full credit monitoring service. It costs £7.95 a month after the free trial. Alternatively, you can get your Equifax report and score free for life through ClearScore. The company makes it money from commission on products you take out via its website.
Free credit scores from TransUnion (formerly Callcredit)/Credit Karma
You can access your TransUnion (formerly Callcredit) report and score for free via its Credit Karma (formerly called Noddle) service. This also advertises loans and cards you are likely to be accepted for. Signing up to a free trial with CheckMyFile will give you access to all the information held on you by TransUnion (formerly Callcredit), Experian and Equifax for 30 days. After this, you’ll have to pay £14.99 a month to keep the service.
What is a good credit score?
Each credit reference agency uses its own scoring system. The table below shows the scale each one uses and what a particular score means in terms of your creditworthiness.
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