Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk

You’ve probably heard the phrase ‘credit score’ used before, whether that’s on television adverts promising to help you improve yours or perhaps when researching credit products, such as a mortgage or loan.
Credit scores can be confusing. Our handy guide aims to break down the jargon and give you the facts, helping you brush up on your credit knowledge and discover ways to work towards a healthier position.

What is a credit score?

Your credit score is based on the information recorded in your credit report and represents how ‘creditworthy’ you are.
When you apply to borrow credit, lenders will use your credit score, along with a range of other factors, to understand if you are able to afford the monthly repayments. They will also use this information to decide the rate of interest you could be offered.

Your score can rise and fall depending on a variety of influences, which we’ll talk more about later.

How are credit scores calculated?

Your credit score is based on several factors, including:

  • How you’ve managed your current and any previous credit commitments;
  • The length of your credit history;
  • Your payment history, which could include your monthly utility bills;
  • How much money you owe – if any; and
  • Whether you have any history of bankruptcy, county court judgements (CCJs), and insolvencies.

How to check your credit score

You can check your credit score using one of the three credit reference agencies:

While you can get a free credit check with all three agencies, it’s worth noting that Equifax and TransUnion are free to use for the first 30 days, and then charge £14.95 and £14.99 per month, respectively. Experian’s service remains free.

Each credit reporting agency has their own individual credit scoring system. A score that is classed as ‘good’ for one agency might be ‘excellent’ with another.

Why is it important to have a good credit score?

A good credit score suggests to lenders that there’s a good chance that you are able to manage borrowing. This could be because of responsible past lending.
Having a good credit score could increase your chances of being approved for credit if you choose to apply for a loan, credit card, or mortgage in the future.

If you were to apply for credit, a good credit score could mean that:

  • You are offered a lower interest rate.
  • You could have multiple borrowing options to consider, allowing you to browse different providers to find the best deal for you.

Bad credit history

Applying to borrow money when you have bad credit history may make it harder to be approved. If you are approved, you could be offered a higher rate of interest.
If you’re thinking about taking out a loan with bad credit, be prepared for the fact that there’s a chance you may not be able to borrow the amount of money you’d like.

The good news is that you can take steps towards improving your credit score.

No credit history

If you’ve never paid bills or borrowed credit before, it is likely that you will have no credit history at all. You may also hear this referred to as a ‘thin’ credit file.
This tends to be common in younger people who are just starting out on their credit journey.

Unfortunately, having no credit history could reduce your chance of being approved for credit. With no previous record of how you have managed credit, lenders may see you as a risk.

You might want to work on building your credit score before you apply. Doing so might help unlock better borrowing options in the future.

How to improve your credit score

  • Did you know that being on the electoral register could have a positive impact on your credit score? Registering to vote makes it easier for potential lenders to identify you and your personal information, including your current address.

  • Check your credit report for errors. It may seem hard to believe, but something as simple as a mistyped road name could affect in your score. If you’ve changed your name or moved house, speak to your credit reference agency and request that your file is updated as soon as possible.

  • Sharing a joint account with somebody – such as a partner or spouse - with a low credit score could negatively affect your own.
    This may seem a little daunting, but it may put your mind at ease to know that simply marrying someone does not automatically link you with them financially. However, you will become linked to them if you apply for credit together. This includes applying for a joint mortgage.

  • Ensure your bills are paid on time each month. Falling behind on or failing to make your monthly repayments will cause harm to your credit score.

  • Keep your credit applications to a minimum. When you apply for credit directly with a lender, they will run a hard search on your credit file. Too many hard searches over a short period of time can cause your credit score to drop. One way you could reduce the amount of hard searches you make is to use a credit broker, like CashLady, when searching for a loan. Using soft search technology, CashLady scan a panel of approved lenders to find you a suitable loan without impacting your credit score. If you are matched with a lender and go on to complete a full application, your lender will conduct a hard credit search at that point.

  • If you have an existing credit card stay well within your credit limit and make at least the required minimum repayment amount each month. Where possible, try to make more than the minimum repayment.

  • Using your credit card to withdraw money from an ATM may suggest poor financial management. Not only this, but you are also likely to incur a fee, and this type of transaction usually comes at a higher rate of interest.

  • When looking into how to build credit, you might be considering a credit builder credit card. The idea behind credit builder credit cards is that they are used to make small, manageable purchases that can be repaid in full each month. This helps demonstrate responsible lending. For best results, use a credit builder credit card alongside the other credit-building methods mentioned above. In time, you may notice a boost to your credit score.

Final thoughts

Navigating the world of credit can be tricky, and it’s easy to feel disheartened if your credit score isn’t looking quite as healthy as you’d like it to be.
Try not to worry – you can start taking positive steps towards building a better credit score today.

CashLady Representative 79.5% APR

Representative Example

Amount of credit:
£1000 for 12 months
at £123.40 per month
Total amount repayable of £1,480.77
Interest: £480.77
Interest rate: 79.5% pa (fixed)
79.5% APR Representative

Warning: Late repayment can cause you serious money problems.
For help, go to moneyhelper.org.uk

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CashLady Representative 79.5% APR