Your credit score can determine whether you’re accepted or turned down for a mortgage, credit card or personal loan, yet many of us fail to check ours regularly.
Credit scores are essentially a measure of how well you’ve handled debts in the past. Your score is likely to be higher if you have always managed to stay on top of your debts, for example, by making any repayments on time, whereas it will be lower if you’ve missed any repayments or exceeded your credit limit.
Why should I improve my credit score?
Credit scores are important because lenders look at them to help decide whether to lend to you, how much you can borrow, and how much interest you might be charged. There are three main credit scoring agencies in the UK – Experian, Equifax and TransUnion (formerly Callcredit). If you don’t want to pay to access your credit score, ClearScore offers a free credit checking service that accesses Equifax data. They also offer free identity protection that scans for stolen passwords, security problems and fraud defence tips.
Other options include MoneySuperMarket’s Credit Monitor tool, which enables you to check your credit score and report free of charge using data from TransUnion and offers free personalised tips to help it grow. Experian also has a free service that enables you to sign up and check your credit score with them and Totally Money offers a similar service using TransUnion data.
Your credit score will vary depending on which credit reference agency you look at. For example, a good credit score with Equifax would typically be over 531 out of 1,000, over 880 out of 999 with Experian, or 604 or above out of 710 with TransUnion. An excellent score for each of these agencies would be 811 and above with Equifax, 961 and above with Experian, and 628 and above with TransUnion.
What is a bad credit score in the UK?
The lower your credit score, the harder you’ll find it to borrow.
Again, different credit agencies assess scores in slightly different ways, but a bad credit score with Equifax would typically be 438 or below. A bad credit score with Experian would be anything below the 720 mark, while a bad score with TransUnion would be 565 or below.
How can improving my credit score benefit me?
The main benefit of getting and maintaining a good credit score is that it makes you much more likely to be accepted for financial products that involve making regular repayments. These can include credit cards, personal loans, mortgages, overdrafts and insurance policies.
A good credit score can also help you obtain better interest rates on products of this nature, which will make your borrowing much cheaper overall. You’ll also likely be able to borrow more money in general, if you wish. In simple terms, the better your credit score, the greater the range of financial options you’ll have available to you.
How can I improve my credit score?
If your credit score is low, it’s worth looking at ways you might be able to improve it. Here are some of the steps you can take to boost your score.
1. Check you’re on the electoral roll
Even something as simple as not being on the electoral roll can have a negative impact on your credit score as companies use this to confirm your identity when you make an application to borrow. You should already be on the electoral roll at your address if you’ve registered to vote, but if you’ve recently moved it might have slipped your mind. Get in touch with your local council to find out whether you’re registered to vote. If you’re not, you can sign up here.
2. Consider building your credit history using a credit card (always pay off in full)
If you’ve never had a credit card or mortgage before, credit reference agencies won’t have been able to build a record of how you’ve managed debts previously, which means your credit score is likely to be low. If you’ve never borrowed, it can help to take out a credit card so that you can create a credit history. If you do, be sure to pay back the full balance at the end of every month to avoid paying expensive interest, or choose a card with a lengthy 0% introductory period and pay off what you owe before this finishes. Our article Balance transfer credit cards and personal loans compared is updated weekly with the best 0% balance transfer credit cards.
3. Make repayments on time
If you’re juggling lots of debts, it’s vital you don’t fall behind with any of your repayments as this could damage your credit score. If you find it hard to remember when payments are due, set up direct debits with each lender to automatically pay back what you owe so that you don’t miss any payments. This can provide peace of mind that you’ll be reducing your debt each month and will also mean you won’t be hit with any late payment charges.
4. Stay within your credit limit
If you have a credit card, make sure you don’t exceed your credit limit as this will negatively impact your credit score. Ideally you should try not to get too close to your credit limit as lenders might be concerned that you’ll slip over it. One of the factors they look at is the utilisation of someones credit limit – and rightly or wrongly they typically assume that the closer someone is to their credit limit, the less in control of their debts they may be. Remember that even though many card providers will gradually increase your credit limit as time goes by, you don’t have to borrow the maximum offered. Only borrow what you can afford to repay – and only then if it’s absolutely necessary.
5. Check your credit report for mistakes and make sure it’s up to date
Credit reference agencies don’t always get it right, so if your credit score isn’t as good as you expected it to be, it’s worth carefully checking your credit file for any mistakes. For example, if you spot lots of applications for credit that you never made, you may be a victim of identity fraud and should report this to Action Fraud either online or by calling 0300 123 2040. Action Fraud is the UK’s national reporting centre for fraud where you should report if you have been scammed, defrauded or experienced identity theft.
If you do discover any errors on your report, you can apply to the relevant agency to get them changed or corrected. If you spot a missed payment on your report that you are responsible for, but there is a good reason for it, you can ask to put a ‘Notice of Correction’ on your file. This is a short note that you could leave to explain the circumstances behind something which may otherwise put lenders off.
You should also make sure all the information shown on your credit report is up to date. For example, if you’ve previously had a County Court Judgement against you which has now been settled, this should be recorded on your credit file as being settled if you don’t want it to impact on your credit rating. If your CCJ isn’t showing up as being settled, you’ll need to ask the court to provide confirmation details which you should then pass on to the credit rating agencies.
6. Make ‘soft search’ credit applications first
If you make a credit application and it’s refused, don’t then go straight to other providers and submit more applications. Every application you make will be recorded on your credit file, so if you make several in quick succession it could look to lenders as though you’re in financial difficulty and desperately need to borrow money. If you want to check whether your credit application is likely to be accepted, many lenders now offer online eligibility tools that can tell you how likely you are to have your application accepted without performing a full credit search that leaves a mark on your file.
7. Close down credit accounts you no longer use
If you have any credit or store cards or other credit accounts which you no longer use, make sure you close them down, as the more credit you have available to you, the less likely lenders will allow you to borrow more money. Having numerous accounts open can also reduce your credit score, whilst increasing your potential exposure to fraud, so shut down unused accounts as soon as possible.
Payment holidays and your credit score
If you’ve taken a payment holiday from your mortgage or credit card repayments to help manage the financial impact of coronavirus, your credit score will be protected against your payment holiday.
However, even though your score shouldn’t be impacted, that doesn’t mean taking a payment break won’t have any repercussions. If you come to remortgage, for example, and you’ve taken a mortgage payment holiday, your lender is likely to take this into consideration (separately to your credit score) and may be more reluctant to lend to you as you’ve experienced financial difficulties in the past.
Bear in mind too that when you take a payment break from any kind of debt repayments, you’ll continue to be charged interest on your balance. If you’re going to struggle to repay this debt, your credit score could be affected, making it harder for you to take out credit in the future.
How long does it take to improve your credit score?
As you might have guessed, boosting your credit score usually doesn’t happen overnight. How long it takes will depend on your unique financial circumstances and how low your score is at the moment.
For example, if it’s just a matter of clearing up some simple errors on your credit report to smarten up a decent score then it shouldn’t take very long. However, if you have a weaker score from missing payments in the past, you’ll usually need to spend a bit of time proving you can borrow and repay money responsibly before your score starts to improve. Building a positive credit history in this way, with a credit card or other regular repayments, could take anything from a few months to several years depending on how serious the issues you’ve had managing credit in the past were. Be patient and stick with it – building good credit is invaluable.
If you’re struggling with debts
If you feel like your debts are spiralling out of control, it’s vital that you seek help as soon as possible. Contact your lenders and let them know you’re finding it difficult to pay back what you owe – they might be able to arrange a more affordable repayment plan with you. You may also be able to reduce your other outgoings so that you can pay back your debts. Learn how to cut costs in our article How to save money – 17 money saving tips.
If you need further help, get in touch with one of the charities specialising in free debt advice. These include StepChange, National Debtline and the Debt Advice Foundation. Read our article How to take control of your debts to find out more. You can find out about your options if you’re in serious debt here.
Do you check your credit score regularly or are you worried that yours isn’t up to scratch and could affect your ability to borrow? If so, we’d be interested in hearing from you. You can join the money conversation on the Rest Less community or leave a comment below.