Your credit score lets lenders know how risky it would be to approve your loan.
This report is crucial as it affects your ability to borrow money or open store accounts. Your credit score will be checked whenever you apply for a loan, a credit card, a store account or any other form of credit.
How do I find my credit score?
It is important to know your credit score. You can request a free copy of your credit report on most financial websites. A credit report is made up of all your financial information. This report lists how well you are at managing your money. If you pay your bills on time and make good financial decisions, then you will have a good credit history and the higher your credit score will be.
Why are credit scores important?
If you have a low credit score then you may struggle to obtain a loan. If you are granted a loan you will be charged more as you are seen as more of a risk to lend money to. Your credit score will help a lender determine whether or not to lend you money, how much to allow you to borrow and how much interest you should be charged.
Many lenders will look past old financial mistakes and base their decision on the most recent financial information that is listed in your report.
Even when applying for something as simple as a mobile phone contract your credit score will fall under scrutiny. It’s a good idea to check your credit score regularly and make sure that it has been updated. Look for any mistakes on the report, if you find any you need to apply to have them investigated and corrected as soon as possible.
Know your score & what you can do to change it
The 3 main credit scoring agencies in the UK are Equifax, Experian and TransUnion, these agencies will give you a free detailed credit report. Each agency has a different scoring system. Credit is broken down into good credit, average credit and bad credit.
Once you have checked your credit score and you know where you stand, you will be able to take the next step. If you have a bad credit score, there are things that you can do to improve it. Building up a credit history normally takes a long time and your score improves when you make good financial decisions. The longer you leave a bill unpaid the more likely it will affect your credit score.
The quickest way to have an impact on your credit score is to pay off all your existing debt and close any accounts that you no longer use. Negative marks will remain listed on your credit report for up to 6 years. After 6 years they will no longer appear as long as the problem has been sorted out.
Shortcuts to improve your credit score quickly
- Register to vote on the electoral roll. This will help improve your credit score and make it easier for you to obtain loans in the future.
- Check for mistakes on your report and have them corrected. If you have paid off debt make sure that this is reflected on your credit report.
- Pay all your bills on time. If you pay a bill or account late it will negatively affect your credit score.
- Make sure that your score isn’t linked to anyone. If you have ever opened a joint account, your score could be affected by the other person’s score and this, in turn, will lower your score.
- Protect yourself from fraud. If people steal your identity and open fraudulent accounts in your name this will negatively affect your score.
Consider a credit building card
A simple way to improve your credit score quickly is to apply for a credit-builder credit card. These cards were designed specifically for those people that don’t yet have any credit history or have a low credit score. This type of card offers a low limit and a high-interest rate. Use your card to pay for small purchases and then pay off more than the minimum instalment that is due. This will reflect on your credit report and prove to lenders that you are creditworthy.
Once your score improves you will be able to open a store account and apply for loans. It is very important to pay off more than you need to in order to help raise your score quickly. If you miss even one payment, all your hard work will be wasted and it will take much longer for your credit score to go up.
Can a credit repair company assist me?
Doing it yourself is better than relying on an expensive credit repair company that will advise you on how to generate a better score. If you have become a victim of identity theft or credit card fraud you will need to report this to the credit reference agency. They will then attach a “victim impersonation” notice to your report. This will warn future lenders that you are a victim and that you are vulnerable to identity theft.
Having a good credit score will make it much easier for you to obtain personal loans with a low-interest rate and more favourable loan terms and you should always consider your credit score when making financial decisions.