Good credit scores are essential for getting the best deals and rates in the UK. But how do you improve your credit score to get better rates on credit products?
In this article, we look at everything you need to know about improving your credit score in the UK so you can make the right decisions when it comes to borrowing money and getting the best deals.
Your credit score is a number usually between 0 and 999, which represents your creditworthiness. It is based on your credit profile sourced from credit reference agencies like Transunion, Experian, and Equifax.
For example, Transunion has credit scores between 0 and 710, while Experian’s scores range between 0 and 999. Equifax’s scores range between 300 and 700.
Different lenders set different criteria for what constitutes a good credit score. However, if your score is below 650, you may have difficulty getting approved for loans and lines of credit with favorable terms.
As mentioned above, your credit score is calculated by a credit reference agency using a scoring model. Different scoring models may use different weights for each of the factors mentioned below, but they all aim to give lenders an idea of how likely you are to repay any debts you may have.
There are several factors that go into calculating a person's credit score:
Payment history. Have you paid your bills on time and do you have no outstanding debt?
Personal information. Your personal information needs to be up-to-date and accurate.
Length of credit history. A longer history usually equals a higher score.
Types of credit used. A mix of different types can show lenders you can handle different types of debt responsibly.
New credit inquiries. Opening too many new accounts in a short period of time can be seen as risky, as each application would trigger a hard search on your credit record.
If you're looking to improve your credit score in the UK, there are a few things you can do.
First, make sure you're on the electoral roll at your current address. This can be done by registering to vote with your local authority.
Secondly, make all of your payments on time. This includes any credit card bills, loans, utility bills, and rent payments. If you have any missed or late payments, catch up as soon as possible.
Use a credit builder product responsibly to help improve your credit score. These products are designed for people with bad or no credit history, and using one can help show lenders that you're a responsible borrower. Just make sure you keep up with the repayments.
Don’t apply for too many new forms of credit in a short space of time. Every time you apply for credit, it leaves a mark on your file which can negatively impact your score. If you need to apply for more than one loan, space your applications out by a few months.
Finally, check your credit report regularly to see how you're doing. You're entitled to a free copy of your report from each of the three main credit reference agencies every year. This will help you keep track of any changes and identify any errors that might be dragging down your score.
If you have a low credit score, there are a few things you can do to improve your credit profile:
Credit builder cards are intended for those who have a poor credit history or who have used credit infrequently in the past. However, the credit limits on these cards are typically low and the interest rates can be high. This is why it’s important to build your credit as soon as possible.
You may improve your credit score by using these cards and making your monthly payments on time. When your credit score increases, you can then apply for other cards and loans with better rates.
Keep in mind that the interest rates on credit builder cards are substantially higher than on regular credit cards. You'll often pay more than 30% in interest annually, which is an additional incentive to make an effort to pay off any outstanding balance in full each month.
If you don't, you can find yourself in debt that's difficult for you to repay, which could further damage your credit score.
A credit builder loan works a bit differently than a traditional loan and is ideal for those with a limited credit history or poor credit score.You borrow money and repay it in monthly installments that helps build up a borrower’s credit score, providing the loan is repaid in full.
If you apply for a credit builder loan, make sure you agree to monthly installments you can afford. Keep in mind that if you miss a payment it will be reported to the credit reference agencies.
A credit repair company is a company that offers services to improve your credit score in exchange for a fee.
You may see advertisements for businesses that promise to improve your credit score. But you don’t have to pay for it; you can do it yourself. Most of these credit repair companies simply provide you with advice on how to access your credit file and improve your credit rating.
When it comes to improving your credit score it’s essential to understand how your credit score works, what factors can affect it, and how to build up a good reputation with lenders.
By monitoring your financial activities, avoiding borrowing more than you can comfortably repay, and staying on top of any debts you have already incurred, you will be able to make sure that your credit record stays healthy for many years to come.
For information and support to aide you in achieving your financial goals Money Helper is a free service set up by the Government to help people make the most of their money. Click here if you would like to learn more about Money Helper and their services