Improve Your Credit Score

How to Improve Your Credit Score

Consumer credit is at its highest growth rate since 2005 with the Bank of England reporting borrowings of over £1.4 billion in April alone.

With the UK forecasted to borrow an additional £9 billion on credit cards over the next six months to survive the current cost-of-living crisis, we look at the importance of maintaining and improving your credit score.

If you are looking to buy your first home, re-mortgage, finance a new car or just need extra credit to support through these tough times, then a good credit score is essential.

Why is a Credit Score Important?

Fundamentally, a credit score shows an individual’s reliability when borrowing money, providing lenders a snapshot to make informed decision on whether to offer them loans, mortgages, credit cards and other services.

A strong credit score not only increases the chances of being accepted for credit but maximising your credit score opens the doors to better rates, deals and higher credit limits.

How is a Credit Score Calculated?

Your credit score is a number between zero and a thousand and is calculated using data from your credit report.

This data includes your address, credit and repayment history along with public records, spending, and saving habits. Simply put, it is the CV for your finances.

There are currently three main credit reference agencies in the UK (Experian, Equifax and TransUnion) that you can use to find out your credit score. Each agency bands score performance into categories rating from very poor to excellent.

ExperianScoreEquifaxScoreTransUnionScore
Very Poor0-560Poor0-438Very Poor0-550
Poor561-720Fair439-530Poor551-565
Fair721-880Good531-670Fair566-603
Good 881-960Very Good671-810Good604-627
Excellent961-999Excellent811-1000Excellent628-710

Although each credit agency has different methods in valuing scores, they are all regulated by the Financial Conduct Authority to ensure a fair assessment.

Tips to Improve Your Score

There are many factors that determine your credit score. Below we have listed some tips to check or action to ensure your credit score is the best it can be.

  1. Check Your Credit Report Regularly

You can check your credit score for free with one of the credit agencies mentioned above or for a small monthly fee you can receive detailed reports.

  • Register on the Electoral Roll

So lenders can identify and confirm your current address.

  • Make Sure You Have A UK Bank Account

Potential lenders will need to see money going in and out of a UK bank account, as this will be where money is taken for re-payments to any credit lender.

  • Build Your Credit History If You Don’t Have One

Avoiding a credit card may sound like a good idea but in reality, lenders need to establish if you are reliable credit user as you could have no credit history.

  • Make Re-Payments on Time

To show lenders you are a reliable borrower, paying up your accounts in full and on time every month shows you are great at managing credit.

  • Maintain a Low Credit Utilisation

Agencies recommend that you keep your credit utilisation rate below 30%. So, for example if you have a credit limit of £10,000 try not to exceed a monthly balance of £3,000.

  •  Report Errors or Exceptional Circumstances

If you believe something is incorrect on your credit report, then contact the lender directly and ask them to change it, otherwise this could have a negative effect on your credit score.

  • Keep Old Credit Accounts Open

Don’t close old credit accounts that show a long credit history. Most credit scoring models tend to reward mature and well managed credit accounts where only a small percentage of the credit limit is being used.

  •  Limit Credit Applications

Applying for credit regularly over a short space of time can ring alarm bells with lenders as it may give the perception of over reliance on credit.

Most Importantly, Only Borrow What You Can Afford

So, you have worked hard to create an amazing credit score to get the best rates on loans, mortgages or long-term interest free credit cards. The most important thing to remember is to only borrow what you can truly afford.

If you are applying for a mortgage, consider the impact on your monthly repayments should interest rates continue to rise and how the cost-of-living increasing could impact your overall household expenditure.

If you are applying for an interest free credit card, ensure you have budgeted to comfortably pay the card off well before the end of the agreed terms to avoid high interest rates and additional charges.

Borrowing more than you can afford can have drastic consequences such as County Court Judgments, Individual Voluntary Agreements and even bankruptcy which will impact your credit report and finances for years.

If you would like any help with getting your finances in line or planning for the future, then get in touch with the Face-to-Face Finance team. We would be happy to get you where you want to be!

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