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What is a credit score in the UK and how can you improve it?

    What is a credit score?

    The credit score, also known as a credit rating, is something that usually scares people off. Most people see it as the “bad guy” who keeps them from getting good credit or lower interest rate on credit cards and loans. Indeed, your credit score may look like the bad guy, but actually, you are his boss – it is your money decisions and financial habits that have an effect on it.

    In fact, a credit score is a 3-digit number which shows lenders whether you’re a good credit risk. It’s created from the information in your credit report and helps credit companies assess your reliability and the risk that comes with your credit application.

    Your credit report is compiled by companies known as credit reference agencies (CRAs). There are 3 main CRAs in the UK – Experian, Equifax and TransUnion (formerly Callcredit). You have a statutory right to get a snapshot of your credit report but you can also check your credit report from each of them at any time. TransUnion offers the service for free, while the other two provide a month-long free trial.

    You should know that your Experian, Equifax and TransUnion score may be different. The reason is that each agency has its own scale, maximum credit score and may use different criteria and information from various lenders. There’s nothing to worry about – as long as your credit score is good and accurate, that won’t affect your creditworthiness.

     

    What is a good credit score?

    881 – 960 and above with Experian
    610 and above with Equifax
    4 and above with TransUnion (formerly Callcredit)

     

    Yes! Your credit score is important.

    Your credit score is checked by more people than you think. For example, when you submit an application for a mortgage or credit, the company takes your credit score into account. A good credit score means that you are a reliable person and you’re more likely to be approved.

    But not only do credit companies look at your credit history – landlords, potential employees and insurers may also check your credit rating before deciding to accept or refuse you.

     

    What you are scored on:

    Usually, your credit score is based on the following information:

    • Personal details about you – name and address
    • Details about all your accounts – bank accounts, credit cards, utility bills, phone accounts, store cards and mortgages
    • Payments history – i.e. do you pay your bills on time and have you missed any payments
    • Previous credit accounts, debts and credit card purchases
    • How long have you had your accounts
    • Address changes
    • Negative information such as collection accounts, bankruptcies, charge-offs and settled accounts

    How to correct errors on your credit report:

    If you notice inconsistencies or mistakes in your credit report, you must immediately contact the credit reference agency as these mistakes may affect your credit score and ruin your chance of being accepted for credit.

    The provider will check the information and if they recognise the mistake, they will correct the report right away.

     

    How to boost your credit score:

    Your credit report is continually changing based on the way you manage your finances. This means that there’s a lot you can do to improve your credit rating. It won’t happen overnight – it takes time and effort, but it is possible.

    Here are some of the things that can help:

    • Paying the money back on time and staying well with your credit limits
    • Getting on the electoral register to vote (or explaining why you’re not eligible to)
    • Applying for open credit accounts when you really need them – having too many credit inquiries may hurt your credit score
    • Having a stable UK address – it’s a good sign for lenders that you’ve lived at one address for a considerable period

     

    Finally, keep in mind that different lenders have different requirements. If you end up rejected by one, that doesn’t mean that the rest will also reject your credit application. Remember this and do everything you can to ensure your credit score is as good as possible. This will open many doors for you.