But what is a credit score? How do you find out what your credit score is? And how can you improve it?
If you’re currently asking yourself these questions, then you’re not alone. In fact, 15 million people in the UK have never checked their credit score. Are you one of them?
Find out all you need to know about your credit score and credit rating here…
What is a credit score?
Equifax define a credit score as “a tool used by lenders to help determine whether you qualify for a particular credit card, loan, mortgage or service”.
A higher credit score is viewed as a potentially lower risk by a lender. This means that if you have a high credit score; you stand more chance of being accepted for your credit/loan application (although there are no guarantees).
A credit rating expands on your credit score (which is an overview of your rating). It provides potential lenders with the following details about you:
- The amount of credit you’re currently using and your debts
- Your history of credit account payments
- Credit searches (this occurs when you apply for credit)
- Public records (electoral roles).
Research by icount in 2016 showed that over 25% of UK adults didn’t understand what a credit score was; and of those that did know, one in ten weren’t sure how to improve it.
You may find you need to borrow money at some point in your life – whether it’s a mobile phone contract, credit card, finance for a car or even a mortgage. Therefore, it’s important that you fully understand the facts of credit scores and ratings.
How do I find out my credit score?
It’s important to remember that every lender will have a different policy when it comes to lending money. Whilst one lender may decide that your rating is too low, and therefore too risky to lend you money; another lender may review your same credit rating and accept your application.
There is no such thing as over-checking your credit score and rating – this won’t be visible to potential lenders, so you could check as many times as you want!
There are three main credit reference agencies, with each one offering slightly different scores. Money Saving Expert recommends that you check all three credit reports at least once a year.
These are the three credit reference agencies to check:
The largest of the credit reference agencies; you can sign up directly with Experian and receive a 30 day free trial to view your credit report. After that, the current monthly fee is £14.99.
Alternatively, Money Saving Expert has recently created their own Credit Club, which, once you’ve signed up, enables you to view your Experian Credit score and report for free.
Credit Club provides you with easy to understand graphics; highlighting product deals you’re most likely to be accepted for, given your credit rating – and none of this will impact your score.
Experian’s credit score is rated out of 999. The closer your score is to that number, the more likely you will receive the better credit deals (although there are no guarantees). An overview of Experian’s scores can be viewed below.
Image source: Experian
Your credit report with Callcredit Information Group can be checked on Noddle.
Credit scores are rated differently to Experian – the maximum score is 710; and you are then rated on a scale of 1-5. If you have a higher score, you are viewed as lower risk, so have a greater chance of being approved for credit.
You can also see how your credit score compares with the average UK adult, in addition to the average score within your area.
Noddle offers you free access to your credit report (as well as score) for life, rather than as a 30 day trial.
You can also see a range of credit card and loan products that could be available to you based on your credit rating; as well as access to money saving offers and vouchers.
Image source: Noddle
Equifax’s credit scores are rated out of 900. Any score that is over 467 is deemed as “excellent”; and if you fall into this category, you are regarded as very low risk.
Image source: Credit Geeks
How do I improve my credit score?
32% of people who have applied for loans, mortgages and credit cards have been declined.
If you have been declined for credit applications, or are considering borrowing in the future (whether it’s a mortgage, a credit card, or even taking out a mobile phone contract); then it’s important that you understand how you can improve your credit score.
Not only will improving your credit score give you a better chance of being accepted for credit, but you may receive the more favourable deals on offer.
There are several ways to try and improve your credit score, including:
Keep on top of your credit card
A Money Supermarket survey found that 71% of UK adults own at least one credit card - the highest proportion of credit card owners in the world.
If you don’t understand how credit cards work, and don’t make payments in full and on time, then they can cause serious issues. In fact, the same survey from Money Supermarket found that at the end of 2015, total credit card debt in the UK stood at £63.1 billion – the equivalent of £2,336 for every household.
Two thirds of credit card owners in the UK have admitted that they don’t understand how their credit cards work; and 13% don’t even know what interest they’re paying, according to Money Supermarket.
Before you apply for a credit card, you need to educate yourself on how they impact your credit score; in addition to reading the different terms and conditions of credit card providers in order to determine which card is best for you.
When lenders look at your credit score and report, they’re trying to predict whether or not you will make payments on time, should they lend to you. The important thing is showing you pay it back in full, on time.
Set up direct debits
A direct debit is an instruction from you to your bank/building society, authorising the automatic payments to a specified company.
Setting up direct debits for your bills means that they are automatically paid in full and on time without you even having to think about it.
Your credit score will suffer if you don’t make payments on time. Direct debits eliminate this problem.
Fix any mistakes
Make sure you double check your credit card to sift out potential errors – you can also find out if you’ve been a victim of fraud.
Money Advice Service recommends that if you do spot any mistakes, you should get in contact with the credit reference agency used to let them know. They will then have 28 days to remove the information, or let you know why they don’t agree with you.
One major mistake that would need reporting is a file showing you failed to pay (when you did in fact, pay on time), as this would have a negative effect on your score.
Other mistakes may seem minor, but they can still be a contributing factor to your declining credit score. You may for instance, have an old phone contract under a previous address that is still technically listed as active. A duplication of personal information at two different addresses can look strange, and can have a negative effect on your rating.
No matter how minor a mistake may be, report any errors to the credit reference agency used so you can get them fixed.
Check you’re on the electoral register
As a British citizen, you should have opted to be added to the electoral register on your 18th birthday. If for whatever reason you aren’t registered to vote, then you can apply at gov.uk (you can choose to opt out of the Open Register, which is the version that can be sold to commercial businesses).
Adding yourself to the electoral register can be a quick way to increase your credit score.
Don’t let your partner’s credit score affect yours
If you and your partner are financially linked on a product (e.g. a joint mortgage, joint loan, joint bank account or joint energy bills account), then according to Money Saving Expert, it means that potential lenders can also access your partner’s files when assessing your lending application.
If your partner has a poor credit score, then it could be affecting yours. You could choose to keep your finances separate to stop your credit rating from being affected.
Be careful with credit rejections
Applying for too much credit (and getting rejected), can have a negative impact on your rating.
The only way to truly find out if you’d get accepted for credit, is to apply for it in the first place. However, every time you apply, lenders will check your credit rating, which will show up on your files. This will have a detrimental effect to your score.
Why? Well, think about it: if you apply for multiple credit applications over a short space of time, it can make you look like you’re desperate for money, and so you’ll get rejected.
You need to really think about the credit you’re considering applying for, and whether you actually need it. Applying for credit shouldn’t be seen as a frivolous action - only apply for credit that you really genuinely need.
Credit score: final thoughts
If you know you want to borrow money in the future, icount suggests that you start building your credit rating up at least six months before.
However, it’s never too early to find out your credit score. Knowing what it is, and taking steps to improve it can only be a benefit to your financial future.
You may also be pleased to know that the “credit blacklist” is a myth. As each lender scores you differently, whilst one lender may reject you, another may accept you. Having a poor credit history can feel like you’ve been blacklisted, but you haven’t been. You just need to start taking steps to help build your score up.
If you are struggling to make repayments, then visit The Money Advice Service for free debt advice.