What is a credit score?
A credit score is a system used by lenders to help them work out whether you are eligible to borrow from them. Credit scores are used as part of the application process for all types of credit agreements, from broadband contracts, mortgages, and everything in between – including credit cards.
Each lender has its own credit scoring system based on the information held on your credit file along with any details you provide as part of your application.
How can I check my credit score?
There are three main credit reference agencies (CRAs) in the UK - Equifax, Experian and TransUnion. To check your credit score, you can apply directly to each for a copy of your report, or sign up with one of the free credit-checking services listed below:
- ClearScore - free access to your Equifax score and report
- Noddle - free access to your TransUnion score and report
- Credit Karma - free access to your TransUnion score and report
- CreditExpert - free access to your Experian score and report for 30 days (after which time a monthly fee is charged)
Notice that each offers access to information held by different CRAs, so you’ll have to sign up to more than one to get a complete picture from all three main CRA’s.
What is a good or bad credit score?
Not only does each CRA have its own scoring system, but each lender has its own method for working out your credit worthiness and will also have different criteria for customers. This means there’s no single number that means you have a good or bad credit score.
But to give you an idea of what goes towards making a good credit score or a bad credit score, here are the scoring categories for each of the UK’s three main CRAs:
Why should I improve my credit score?
Having a poor credit score could make it more difficult to get credit. If you have a bad credit score and you are accepted for credit, you could find that your borrowing limit is low and the interest you’re charged is high.
The same applies if you have very little credit history, which will be the case if you’ve never taken out credit before.
Improving your credit score or building your credit history improves your chances of being accepted for credit. As your score increases, you should find that you’re eligible for more products, with higher limits and lower rates of interest.
The reason your chances of acceptance improve as your score does, is because lenders have evidence that you can handle credit responsibly.
How can I improve my credit score?
If you have a low credit score, there are several things you can do to try improve it:
Register on the electoral roll
Credit checks are used to protect against fraud, so being registered on the electoral roll is a simple way to prove you are who you say you are. Find out more at the UK government website.
Check for mistakes on your file
Your credit score can be wrongly affected if there are any mistakes on your credit file, such as a mistaken missed payment or an incorrect address. Check everything is up to date and fix any mistakes.
How to report and fix any mistakes on your file
To correct a mistake on your credit file, get in touch with the relevant lender and CRA to flag the error, and provide as much supporting evidence as possible.
Pay your bills or credit obligations on time and never miss a payment
The best way to show lenders and CRAs that you can handle credit responsibly is to make sure your agreed repayments are never late and never missed. Keeping up with credit card, phone contract’s and any other repayments could all help to increase your score.
Consider getting a credit-builder card
A credit builder card, also known as a bad credit credit card, is designed for borrowers with a poor credit score or no credit history. When you get a credit card for bad credit, it could come with a low borrowing limit and high interest rate to help ensure you don’t fall into severe debt and encourage you to pay off your balance each month.
Use 'soft searches' when applying for new credit
A ‘soft search’ is used by lenders to give you an initial decision. Although a record of this ‘soft search’ is recorded on your credit file for 12 months, it’s invisible to other companies and so doesn’t affect your credit score.
This isn’t a guarantee that they’ll lend to you, but will give you a good idea about whether you should carry on with the full application. If you do continue, your lender will run a ‘hard search’ that will affect your credit score, even if your application is successful.
Remove defaults, County Court Judgments (CCJ) or bankruptcies
If you miss a payment, this will be noted on your credit file for six months. If you miss multiple payments, causing your lender to close your account, this is known as a default and will stay on your credit file for six years. CCJs, IVAs and bankruptcies will also stay on your account for six years.
If you have any record of a default, CCJ, IVA or bankruptcy on your credit file after six years has passed, getting it removed can boost your credit score.
Keep your credit utilisation low & reduce your debt levels if you can
Paying off existing debts will help lenders see you’re managing your credit correctly. On the other hand, spending on your card until it’s near its limit can suggest to lenders that you’re over reliant on credit, which can damage your score. Try to keep your credit utilisation as low as possible.
Other tips to help improve a credit rating
Here are some other things you can consider to boost your credit score:
Don't move home too often
Although no-one should let their credit score dictate when they change address, moving several times within a short space of time can impact your credit score. This is because lenders prefer stability, and frequently changing addresses can be a red flag for lenders, who may assume you’re struggling to pay rent or bills.
Get bills in your name and pay them on time
If you’re regularly paying household bills and credit agreements on time, you want to make sure this is noted on your credit file. If possible, make sure all relevant bills are in your name, including telephone bills, utility bills and TV subscriptions, and keep up to date with payments.
Check if you’re linked to another person
If you’re married to someone with a poor credit rating, or you have any joint accounts with someone who has a poor credit score, this can affect your credit score. This is because these joint accounts are recorded on both your credit file and theirs, and a financial link could suggest that you’ll need to help them out if they don’t have a good history of handling credit.
Check for fraudulent activity
If someone is using your account fraudulently, this can impact your credit score and can quickly escalate if it’s not picked up before the account defaults.
Check your credit report for any unusual activity, and keep an eye on your email account for any confirmations of purchases that you don’t recognise.
Bills from companies you’ve had no dealings with and debt collectors contacting you about bills you don’t recognise can also be a sign of fraud on your account.
Recovering from credit fraud
If there’s been fraudulent spending in your name, you need to contact the lenders in question and explain the situation.
You should also contact Action Fraud and get a copy of your credit file from all three CRAs, before alerting them to any suspicious activity. You should then add a notice of correction password to your credit report, choosing one that nobody else would know or could guess.
If a fraudster applies for credit in your name, lenders should request this password before opening a credit account.
Avoid expensive credit repair companies
There are a number of companies who will offer credit repair services. Although they’re completely legitimate companies, there’s no need to pay anyone to help improve your credit score. This is because there’s no quick-fix when it comes to credit repair.
Improving your credit file is an ongoing process that begins with making sure your credit file is optimised by correcting any mistakes and making sure you’re on the electoral register, and successfully managing your credit by never going over your limit and keeping up with your repayments.