Understanding credit scores can be challenging and daunting, especially if you have no credit history, need to start over because of a bad credit score, or are looking to build up your credit.
Our comprehensive guide aims to cover all aspects of credit scores, including how they are calculated, the factors that affect them, and practical steps on how to improve credit score. Whether you’re just starting or trying to bounce back from financial difficulties, our guide provides all the information you need on how to raise credit scores.
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What factors build up a credit score?
In the UK, there are several factors that contribute to building a credit score, such as:
- Payment history – Bill payments’ timeliness, any missed or late fees, and the frequency of such occurrences. Making consistent, on-time payments can positively affect your credit score.
- Length of credit history – The longer you have maintained and utilised your credit accounts, the more advantageous your credit score is. This demonstrates to lenders a comprehensive record of your borrowing and repayment patterns.
- Credit utilisation – It is important to consider the percentage of available credit that you are utilising. Maintaining a credit utilisation rate of less than 30% is generally advised.
- Public Records—Public records like County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), bankruptcies, and loan or credit account defaults can influence your credit score significantly.
- Electoral roll registration – Registering on the electoral roll at your present residence can enhance your credit rating by allowing lenders to confirm your identity and reliability.
How does the scoring of different credit agencies differ?
Credit reference agencies generate various iterations of credit scores to offer insight into how potential lenders might evaluate your loan or credit card application.
What is a good credit score? Each agency utilises a unique scale, resulting in varying interpretations. For instance, a score below 560 is considered ‘very poor’ by Experian yet deemed ‘good’ by Equifax.
Credit Agencies breakdown:
Experian’s credit scoring model prioritises the length of your credit history, credit usage rate, and recent credit inquiries. Additionally, it considers the variety of credit accounts you hold and your track record of making timely repayments.
Experian – ranging from 0-999, very poor 0-560, poor 561-720, fair 72-,880, good 881-960 and excellent 961-999.
Equifax evaluates credit by considering public records such as bankruptcies and Individual Voluntary Arrangements (IVAs), payment history, level of debt, credit mix, and recent credit report inquiries.
Equifax – ranging from 0-1000, very poor 0-438, poor 439-530, fair 531-670, good 671-810, excellent 811-1000.
TransUnion’s scoring algorithm emphasises credit usage, length of history, and recent applications. It also considers the variety of your credit accounts and payment history.
TransUnion – ranging from 0-710, very poor 0-550, poor 551-565, fair 566-603, good 604-627, excellent 628-710.
Where can you view your credit report?
There are many different credit agencies, so it is challenging to know which is best and whether you need to pay for their services. A credit score check can be done through the following credit agencies:
Experian – Free 30-day trial, then £14.99 per month afterwards. Offer a free statutory credit report.
Equifax – Use ClearScore, which provides free access to your report.
TransUnion – Use Credit Karma, giving you free report access.
Check My File – This service gives you a complete overview of data taken from Equifax, Experian, and TransUnion, which is £14.99 per month.
If you are still trying to figure it out, Money Saving Expert offers an excellent, comprehensive guide to assist you in selecting the right report.
What can lower your credit score?
It’s crucial to understand that several factors can have a negative impact on your credit report and lower your credit score. These factors may comprise:
- Missed or late payments
- High credit usage
- Defaults
- Bankruptcy
- Frequent credit applications
- Short credit history
- Lack of credit mix
- Errors on your credit report
- Not being on the electoral roll
Understanding credit reports and the factors that impact them is crucial. This knowledge can significantly influence your financial well-being. Knowing how to check your credit score and how to build credit score will benefit you in the long run, opening doors to better financial opportunities.
How can you build up your credit score?
Working to improve your credit score is essential, but plenty of strategies exist to assist you on how to improve credit score. The initial step involves obtaining your credit report to identify any missing information and verify the accuracy of your existing data.
Ways to improve credit score include:
- Registering to vote at your present residence is an uncomplicated method to enhance your credit score. This aids lenders in confirming both your identity and address.
- Make your payments on time. Ensure that utility bills such as gas, electricity, and water are registered under your name and paid promptly as late payments affect credit score.
- Keep old accounts open – Having a longer credit history helps improve your score, so keep older accounts open if possible.
- Don’t max out your credit – aim to use less than 30% of your available credit.
- Limit credit applications – Multiple applications in a short period can lower your score.
- Consider obtaining a credit card to build credit score, tailored explicitly for individuals
without any credit history. Although these cards typically come with higher interest rates, utilising them responsibly can contribute to developing your credit score.
Experian, a credit agency, provides a free service called Experian Boost. This service utilises data from your council tax payments, subscriptions, and savings accounts. It can also raise your credit score if you meet the eligibility criteria. If you rent your home, using Experian Rental Exchange service allows you to add rent payments to your credit report.
Building and improving your credit score takes time and consistent effort. You can gradually enhance your credit score by following these steps and practicing responsible financial habits. It’s important to remember that every small action matters, and with consistent effort, you can observe significant improvements in your credit score over time.
If you prefer to receive regular guidance on building or maintaining your credit score, consider seeking advice from a financial advisor or debt charities such as Citizens Advice or StepChange.
Our top most asked questions on car finance | FAQs
Q. Do you need to pay to view your credit report?
The requirement to pay for a credit report varies depending on the specific credit agency utilised. However, it’s important to note that all credit services should offer a free statutory credit report as part of their offerings, ensuring you have access to essential information without any financial burden.
Q. How long does it take to get your score from poor to good?
Enhancing your credit score in the UK, transitioning from poor to good, can be influenced by factors such as your initial standing, the specific measures you undertake to enhance your score, and your commitment to maintaining good credit habits. Typically. Observing substantial enhancements may require several months to a few years.
