Back in the day, your credit score (or rating) was a super secret number that you couldn’t easily access without handing over your bank details and even then – none of us really knew what it meant.
However, as time has passed and better regulations have come into place, there are now plenty of free tools you can use to monitor and analyse your personal credit score in the hope of understanding what it means, why it’s important and even how to improve it.
Want to learn more? Read on.
What is a credit score?
A credit score is a number that allows companies in the financial industry to decide whether to lend you money or not. The score range varies by company, but it all works the same.
A lender will use this information (along with other factors) to decide whether you can afford the loan and if you’re likely to pay it back. Simply put, the higher your credit score, the more likely you’ll be accepted for a loan.
Don’t worry, it’s not a service you have to sign up for and opt into, you’re regularly being monitored based on your financial activity. However, it’s something you should definitely look after.
Lots of factors go into shaping your credit score including past debt, credit card limits, loan applications – even whether you’re registered to vote or not.
It can be a frustrating and seemingly arbitrary number that doesn’t reflect your financial situation, but it’s what we’ve got so it’s probably best to get on board.
How do I improve my credit score?
Realising that your credit score is important is the first step in improving it. Avoid burying your head in the sand or ignoring your financial health as this will only make things worse.
But, it’s important to know that improving your credit score is a marathon, not a race.
Your score will fluctuate, depending on what you’re doing in your life. For example, my credit score took a big hit this year. Not because I was maxing out credit cards or applying for payday loans, but because I organised my bank accounts and became financially connected to my partner when we applied for our mortgage.
Improving your credit score takes time, and lots of nurturing, and none of us really know for sure what will positively affect it, but here are just a few things that we know have an impact.
Register to vote
Being on the electoral roll is the first step you should take to improving your credit score. You can register to vote online or through the post – it only takes a couple of minutes.
Not only will this add a positive to your report, but voting is kinda cool, and we should all be doing it!
Stagger credit applications
Don’t open a new bank account, take out a loan and renew your car insurance all in the same month, it’ll have a negative impact on your credit score. Instead, try and keep your applications spaced out during the year if you can help it.
Build your credit history
Never having a loan of any kind actually works against you. It might seem silly (because it is), but when it comes to getting a mortgage or insuring your car, you might struggle if you have no information to prove you’re financially responsible.
You don’t have to get a credit card or small loan to do this, simple things like having a phone bill in your name or opening a bank account can help improve your score. Of course, it might dip at first, but it’ll build over time.
Keep an eye on it
There are plenty of services (paid and free) that you can use to track your credit score. It used to cost £2 to check, however since the new GDPR law in May 2018 – it’s now free because you have a legal right.
Lenders will use one of three credit reference agencies – Equifax, Experian or TransUnion – to check your score and while these three offer their own service, you can use free services like Noddle or ClearScore that show you these reports for free.
How are these services free? Well, they offer you credit cards and loans and get a commission on any you take out – but you don’t have to.
Be financially responsible
The easiest way to keep your credit score healthy is to be responsible with your finances. Where you can avoid it, don’t make late payments to lenders, don’t borrow money from payday loan companies and don’t max out a credit card.
Being smart with your money is the best way to prove to future lenders that you’re a good candidate for a loan and you’ll keep up payments.
What if they still say no?
If you’re unable to improve your credit score enough because you can’t gain control over your finances (for whatever reason), the lender might be right not to see you as a successful candidate.
It can be annoying, but the reason we have this system in place is to stop people getting themselves into further financial issues and also to protect the companies.
Don’t take it to heart, assess what the problem is and make an effort to start fixing it and making smarter and healthier financial decisions.