A credit score is essentially a tool that lets lenders know how reliable you are.
Which means – if you want to borrow money in the form of loans, finance or a mortgage, your score needs to be decent.
Step one is to work out how to actually check your credit score (it’s really not difficult). Step two is understanding what your score is, and working towards improving it.
If your credit score is on the lower side, that’s not necessarily a reason to panic. There are plenty of ways to improve your rating – but first you need understand exactly why it matters.
‘Credit scores predict the likelihood you’ll pay your credit on time in the future based on how you’ve managed any credit in the past, which is summarised in your credit report,’ explains James Jones, head of consumer affairs at Experian.
‘Your credit score is important as it helps new lenders decide whether they want you as a customer.’
James says the better your score, the more likely you are to be accepted for a wide range of accounts. This includes financial products like loans and credit cards and other common household bills such as monthly phone and energy contracts.
‘As well as the key to being accepted for these accounts, a good score can be kind to your pocket as it will increase your chances of securing the best deals, such as the headline interest rates, which are often reserved for the top scorers.’
James says that people should think of their credit report as their financial CV.
‘You wouldn’t apply for a job and let an employer look at your CV without first checking to make sure it’s up to date and paints the best picture of your suitability for the role – so don’t apply for credit before giving similar attention to your credit report.
‘Sometimes there are really easy ways to make it shine.’
James would always encourage people to check their credit score to find out where they stand, as he thinks that’s always the best starting point for improvement.
‘In terms of improving your score going forwards, things like getting on the electoral roll, keeping your card balances low, and not making too many credit applications in a short space of time, can all help you grow your score and unlock better and cheaper deals in the future,’ adds James.
How to improve your credit score
James offers some practical tips for improving your credit score – the points he references are based on the Experian Credit Score, which we explain further down.
Register on electoral roll at your current address
Have your say in local and national elections and help build your financial profile.
As well as helping lenders confirm your name and address, being on the electoral roll contributes up to 50 points to your Experian Credit Score because it’s seen as a sign of stability and reliability.
Regularly check your credit report and ask for any errors to be corrected
A single late payment can wipe 130 points off your credit score, so make sure your report reflects the facts. If you spot an error, ask the agency to raise a dispute for you.
Keep any credit card balances as low as possible
Using a credit card wisely can really help boost your credit score, but do be careful because cards can be expensive if you build up debt on them.
Repaying anything you borrow in full each month will mean you pay no interest. How much of your card limits you regularly use each month can have a big impact on scores as it shows how reliant you are on credit.
For example, keeping card balances below 30% of the limit can gain 90 points.
Build up your financial track record
Lenders like to see a proven track record of responsible credit management, so get a bank account and try to get your name on some of the household bills (energy, water, broadband etc), making sure that, even if these are shared with housemates, your monthly payments are always made on time.
Make your rent count
For tenants, consider registering with a firm like Canopy or Credit Ladder to have your rent payments reported to Experian and included in your credit history (and soon your credit score).
Get credit for developing a savings habit
Fin tech Loqbox can help you save for the future and give your credit score a boost in the process.
Let your credit history mature
While it’s sensible to shop around from time to time to make sure you’re getting the best deals, it will help your credit score if you let some of your credit accounts mature. For example, holding the same credit card for five years can add 20 points to your Experian Credit Score.
Plan and limit applications for new credit
Space out any credit applications you make and shop around using eligibility-checking services. That way, you’ll only apply for deals you’re likely to get and avoid collecting multiple ‘hard’ search footprints.
Not applying for any new credit for six months can boost your Experian score by 50 points. It’s basically about not being needy.
Check your eligibility
Use an eligibility service to shop around and apply for credit, such as at co.uk.
We can show you which deals you’re likely be accepted for, without affecting your credit score. Importantly, this can include pre-approved deals and also guaranteed interest rates, based on your actual circ*mstances, greatly removing the guesswork.
The Experian Credit Score is our public-facing score which runs on a scale of 0-999. It is provided as a guide to how lenders might interpret the information on your Experian Credit Report. But it is a guide and no lenders actually see it, although it does align with how many lenders score credit report data. We give everyone a free Experian online account so they can track their score each month. Our score bands are as follows: Very Poor 0 – 560 Poor 561 – 720 Fair 721 – 880 Good 881 – 960 Excellent 961 – 999 James Jones, ExperianHow does the Experian Credit Score work?
Your score can make you better off
James says that a high credit score will help you qualify for credit and help you secure the best ‘headline’ deals, potentially saving you lots of money.
This is because not everyone gets the cheapest advertised interest rate.
‘Our research suggests that improving your credit score by one score band could see the APRs available to you fall by at least 2% on average,’ says James.
‘So, if someone improves their Experian Credit Score from Poor to Fair, we estimate that they could save an average of £381 on a four-year loan of £6,000, as they would likely be paying a lower interest rate.’
We like the sound of that.
MORE : Why is a mortgage considered ‘good debt’ – and is that actually the case?
MORE : All the things that can affect your credit score
MORE : Everything you need to know about your credit score including how to check it
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