When applying for any form of credit, having a good credit score is incredibly important and it will ultimately affect all financial commitments in your life: loans, mortgages, credit cards and many other forms of credit are dependent on you having a good credit score.
Looking for practical advice on how you can build and improve your credit score with 8 simple and effective steps? Download our eBook for more information.
But what is a credit score?
A credit score is a number that lenders use to determine whether or not you qualify for a particular loan or credit service (such as a loan, mortgage or credit card) and whether or not you will be able to pay that credit back. Credit scores help lenders to understand your past borrowing behaviour and whether or not you are financially responsible. It’s important to note that while your credit score is important, it’s not the only factor lenders consider when reviewing credit applications and making decisions.
Your credit score is determined by your credit report; a record that contains information about your borrowing history. Credit reports in the UK are compiled by Equifax, Experian and Callcredit – all of whom are licensed credit reference agencies (CRA) – and each agency evaluates your borrowing history to assign you a credit score. Generally speaking, having a high credit score will increase the chances of your credit application being approved, as it shows you borrow responsibly and pay back credit on time, and will also give you access to better credit rates, deals and loans.
A low or bad credit score, on the other hand, will influence the availability of credit, potentially preventing you from taking out a loan or any other form of credit, as well as potentially high borrowing costs/rates. However, a low or bad credit score – while daunting – can be fixed. If you are wondering how to improve your credit score, the first step is being aware of your current situation and staying on top of your finances from that point onwards.
How can you improve your credit score?
Get a copy of your credit report
Credit score repair starts with your credit report. So, first and foremost, obtain a copy of your credit report from one of the three CRAs: Equifax, Experian and/or Callcredit. All CRAs have a statutory obligation to provide you with a copy of your credit report for £2. You can access the report online or by asking for a written copy.
We would advise that you get a copy of your credit report from each CRA if you have not applied before, as they might have different information from different credit providers. Having all of the information in front of you will allow you to get a better idea of your current financial situation and how to improve your credit score.
Pay your bills on time
One of the biggest contributing factors to your credit score is whether or not you pay your bills on time. Missed or late monthly repayments will negatively affect your credit score. However, if you have a history of paying all your bills on time you can gradually improve your credit score. On that basis, ensure you pay your bills on time – perhaps set up monthly reminders to ensure that you do so!
In addition to the steps outlined above, there are a number of things you can do to help improve your credit score over time – and we explore these options in our eBook.
Download our new eBook to find out more about why your credit score matters, how to track it, and practical tips on how to improve it.