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Your credit score: what is it and how to improve it

If you want to borrow money (and you almost certainly will have to if you want to buy your own home) then a lot will depend on your credit score.

A good credit score could help you to be offered the best value mortgage deals; a poor score could mean you’re offered more expensive mortgages or even none at all.

We've put together an all encompassing guide below to help you understand your own credit score and how to improve it.

Your credit score: what is it and how to improve it

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What is my credit score?

When you apply for a mortgage, credit card or loan of any kind, your credit rating will be assessed.

Although each institution has its own criteria and way of scoring you, your credit score will play a role in whether or not your application will be accepted. In short, your credit score is how trustworthy financial institutions see you, so for many of your financial transactions to be approved, you should look to have the best possible credit score you can. 

Certain things will improve your credit score across the board, but it’s important to understand that there is no single score against which all agencies and banks use. As a result, lenders will each see you differently, meaning while some lenders might approve you for a financial transaction, some others might reject you.  

How is it worked out?

Your credit score is assessed every time you apply for a credit-related product (e.g. a mortgage, loan, credit card or even a phone contract). It may be different every time, and can vary significantly between providers and across different credit reference companies. In short, you have no universal credit score – just a credit history that lenders and ratings agencies may interpret in different ways.

What is my credit history?

Your credit history (stored on your credit report or file) is the record of all your previous borrowing. It’s a good idea to get a look at yours before applying for credit, so you can check it’s accurate. A mistake could lead to a rejection – and a rejection can in turn damage your credit history. You can request a basic credit report from any of the credit reference companies, though some charge fees (and may charge more for more detailed reports).

What are the different credit scoring models?

In the UK, there are three main credit rating agencies: Experian, TransUnion and Equifax. These agencies look at your financial and credit history to give you a personal credit score. 

Experian will mark your credit history out of 999, with scores below 560 classed as poor; Equifax scores you out of 700 while TransUnion’s ratings are out of 710. Some credit scoring agencies also use FICO scores – a three-digit score between 300 and 850 – to assess your credit worthiness.  

Ratings agencies assess your scores and pass this information on to the financial lenders who will ultimately make the final decision on whether or not to approve your financial request.  

What does my credit score affect?

Your credit score will affect various different financial transactions. If you are seen as a riskier borrower, lenders will likely charge you higher interest rates in order to get a bigger pay off. 

At the end of the day, lenders are looking for profitable customers, meaning that any of the following applications you make could be subject to different interest rates based on your score: 

Any of the following things can be subject to your credit history: 

  • Mortgages 

  • Credit cards 

  • Loans 

  • Types of insurance 

  • Bills 

What are providers looking for?

This depends on the product you are taking out. If you’re applying for a mortgage, the lender wants evidence that you will repay the loan and won’t default on it. A good history of borrowing and repaying on time is therefore very important.

If you are applying for a credit card, however, the criteria may be slightly different. A history of perfect repayment may sometimes count against you, as the card provider wants to make money from you.

Beware of having too little credit history. If you have never borrowed money, providers have no evidence of what sort of customer you might be. You may therefore need to build up your credit history before applying for a mortgage.

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What do lenders know about me?

Lenders can access certain information about you that will help them to decide whether or not you are a worthy borrower.

Publicly accessible information such as electoral roll data, court judgements, addresses and certain other personal information is accessible to lenders and rating agencies. Some of your payment history is also taken into consideration, such as how reliable you are at meeting payments and whether you have ever committed fraud. 

It’s important to note, though, that information about your ethnicity, sex and religion as well as who you are living with cannot be viewed.

Lenders also can’t access your student loan information, council tax arrears and parking fines as well as certain missed payments and defaults. Information about defaults only remains on your record for six years, and once this time has passed, lenders won’t be able to see this.  

Why is a good credit score important?

Your credit score affects not just whether or not you’ll be accepted for a product (such as a mortgage or credit card) but also the quality of the deal you’ll be offered. In other words, having a good credit score makes life much cheaper for you in the long run.

What can damage my credit score?

  • Aside from the obvious things, such as a poor history of repaying debt, numerous other factors can have an impact.
  • Frequent credit applications – each one will lead to a credit check, and too many of these could alarm other lenders.
  • Lots of debt – too much debt is a warning sign, even if you keep up with repayments.
  • Financial links with others who have poor credit history – such as joint bank accounts, joint mortgages and (sometimes) joint utility bills.
  • Old credit cards or store cards – too many of these can put lenders off, especially if they are registered to old addresses.
  • Mistakes – errors can happen anywhere and lead to your application being rejected.

Learn more: Does switching bank accounts affect your credit score?

What if my credit score drops?

There’s nothing you need to immediately worry about if your credit score drops. Depending on which credit rating agency your preferred lender is using, you might find yourself assessed against different criteria than somewhere else, potentially meaning your score could be downgraded. 

Different agencies are looking for different things, so you shouldn’t expect to be seen the same everywhere you go. 

For that reason, it’s important to note that it’s very rare for every credit application to be accepted at each request, so slight dips in your credit rating aren’t anything to be worried about. 

How can I improve my credit score?

So, with a good understanding of what your credit score is, how it affects you and how financial lenders use it, how can you improve your credit score? There are some very easy steps you can take to improve your credit score. Remembering that each agency will rate you differently, consider taking some of the following advice: 

Have a credit history 

Very simply, not having a credit history can see your application turned down. While you could be forgiven for thinking that having never used your credit card could be seen as a sign of responsible financial management, it actually gives agencies and lenders no information about how reliable you are at making repayments. Consider using your credit before making an application. 

Make payments on time 

Credit scores assess your risk profile. If you’re not a risky borrower, you will have a high score versus a riskier borrower who will have a lower score. If you want the best possible credit score, make sure you pay off anything outstanding on time and with regularity.  

Don’t make lots of applications 

Hard checks will appear on your record, so be careful what you use your credit for. If you make lots of applications, and use your credit to pay for various things, you can quickly rack up lots of hard checks on your record. This can be a red light for certain lenders.  

Don’t withdraw cash with a credit card 

Using a credit card to withdraw cash not only means that you’ll instantly be liable for paying interest on that withdrawal, but will also be seen by institutions as poor money management.  

Close unused accounts 

Having lots of different current accounts is often viewed negatively. Choosing a single account is a quick and easy step you can take to boost your score.  

Your mortgage broker can also give you tips on ways to improve or protect your credit score.

How can an independent financial adviser help my credit score? 

Independent financial advisers (IFAs) are experts when it comes to helping people take simple steps to improve their credit scores.

Whatever your circumstances or personal situation, the right IFA can help you improve your credit rating, maximising the chances of your application being accepted.  

Credit scores and ratings can be difficult to understand at first. It can often seem like what affects your credit score is deliberately confusing, so when it comes to making sure your personal finances are in the best shape possible, speak to an IFA who is right for you. 

Unbiased has 27,000 independent financial professionals across the country, so let us match you to your perfect adviser.

If you found this article helpful, you might also find our articles on how to start making a financial plan and what does a financial coach do informative, too!

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.