Your Credit Score – What Is It And How To Improve It
If you’re looking for a way to improve your credit score, look no further. We’ve got all the information you need to get your credit score from bad to good.
When you’re looking for a loan, a mortgage or a credit card, there’s something that can put your search to a sudden stop. Its name? Bad credit… Yes, credit is the bane of borrowers’ and applicants’ lives, all around the country. If you’ve got a poor credit score, your lending options are limited and sometimes, you can’t get the best deal. Bad credit is pretty naff, but how do you go about improving it?
Well, for all of those wondering, we’ve got all the information you need on credit scores and improving them. In this post we’re going into extreme detail about credit scores and everything surrounding them. You can find out everything you need to know, right here! Our leading team of financial experts have worked together to provide all the information you need on credit scores.
What are Credit Scores?
We’ll start by explaining what credit scores actually are. Think of them as your individual financial footprint. It’s a compilation of all your credit history which includes bill payments, loans borrowed, overdrafts and credit cards you own etc. This information held in your credit file, allows lenders and banks to know what kind of borrower you are. With things like mortgages, credit cards and loans, banks and lenders want to be assured that their investment will be returned in full. So, you’re judged by your credit score when you apply for a financial product, be it a loan, mortgage or credit card. It assesses your reliability as a potential customer, and despite what you may be like as a person, your credit score factors into what you can borrow.
There are 3 things that come to mind for lenders when they see your credit score.
- Whether you qualify (If you can borrow money)
- How much you could borrow
- How much interest will you pay
The better the credit score, the more likely you are to qualify for a loan, especially to borrow larger amounts or a higher credit limit on your credit card. If you’ve got a good credit score, you could be charged less interest on your loan or credit card. However, if your credit is bad, you may not even qualify for a loan in the first place. And even if you do, you may not be able to borrow as much as you need and you could end up paying a higher interest rate than someone with a good credit.
Whilst there are alternate methods for bad credit borrowing (guarantor loans), you need to work on improving your credit score, so you can better your options in the future. Good credit puts you at an advantage in life when it comes to borrowing, so it’s essential to work on improving it. The worse your credit, the more ‘risky’ you are in the eyes of the lenders.
But what can have a negative impact on your credit? Well, any missed bill payments or money owed that wasn’t paid back on time, factor into making up your credit score. If you’re not the best at paying on time, it can directly affect your credit score. So, that missed phone bill payment can impact your credit score. However, you can have bad credit because you’ve never established your credit profile. If you haven’t had your name on a bill in the past, then your credit score is likely to be bad. That’s why so many students and young people have ‘bad credit’, because they may not have their name on any bills or borrowed money. If you’re a student or a young person, your credit can’t be affected by those you live with, student loan repayments and previous occupants of your address. Your credit report contains all your recent financial information as well as your previous history.
But, how do you stay on top your credit score? By regularly checking it.
If you’re unsure about your credit score, there are so many services that can assist you in checking it for you. They’ll provide a fully comprehensive credit report, including your credit score, so you know exactly what your credit score and history looks like. In the UK, there are three main credit scoring agencies, and each have different scales on which they judge credit on. The three main agencies are;
Whilst these agencies charge for a credit report, you can receive a free credit check at any of the following sites, listed below.
These sites provide you with the essential information of the three agencies’ credit reports, however, there is around a 2-month delay on updating your information. These sites will also recommend loans and credit card deals to you as well, as that’s where their profit comes from (through advertising). This can be handy when it comes to looking for a loan, as you can shop around for the best offer.
You can sign up to credit score memberships from the three agencies, which provide up to date credit reports and information. Whilst they all offer a free trial, the memberships can be costly, so be wary before choosing to use an agency. You are legally allowed access to your credit score, for a £2 fee. Your statutory credit report will have the most up to date info and any credit agency that holds a copy must provide it to you for this small fee. Your credit report includes:
- Your Name
- Date of Birth
- Credit Applications (loans, credit cards etc.)
- Financial Connections (joint accounts or loans)
- Late and Missed Payment History
- Money Owed to Banks or Lenders
- Any CCJs (County Court Judgments) against you
- Electoral Registration (if you’re signed up for your current address)
- Declared Bankruptcy or IVA (individual Voluntary Agreement)
Your credit report needs this information in order to determine your credit score for lenders to use. Other information you may need to provide when applying for a loan or credit card includes: your salary, medical history, criminal record, student loans and other information to (subject to the lender). This information may be used alongside your credit score to see if you qualify.
Good and Bad Credit
So, once you’ve got your credit report, how do you know if it’s good or bad news? The three leading credit agencies in the UK have different scoring methods, which we’ve outlined below.
Whilst many different lenders and banks consider what score is a ‘good’ one, the standards of good credit are set by the credit scoring agencies. And they are;
- 420 out of 700
- 880 out of 999
- 4 out of 5
These aren’t the set scores that lenders will judge you on when applying. They take into account your salary and what you’re like as a person as well, before approving you for a loan. But, what do you do if your credit is bad?
Bad Credit Lending
Unfortunately, if you’ve got bad credit and are looking for a loan, you may not receive the fairest rates from banks and high-street lenders. However, there are ways to borrow money if you have bad credit. Guarantor loans are a way of borrowing money, when you have bad credit, at a much fairer rate. Guarantor loan providers, like us at TFS Loans, don’t take into account your credit score. All you need is a guarantor to support your application. Your guarantor must;
- Have good credit
- Be a UK homeowner
- Be between the ages of 18-78
They’ll need to sign for the loan with you, to agree that should you fail to make any repayments on your loan, they will cover them for you. But, at TFS, we only contact guarantors as a last resort. We usually aim to set up a payment plan with the borrower before contacting the guarantor. For more information on guarantor loans, visit our FAQs page on our website.
Why care about credit?
Whilst some may think that their credit score is unimportant, especially when there are bad credit lending options available, they couldn’t be more wrong. You should care about your credit score because of the financial opportunities you will miss out on if you don’t have good credit. Whilst guarantor loans are a good way to secure money if you have bad credit, you’ll receive better rates on credit cards and other loans if you have good credit.
And credit scores don’t just matter if you’re after a loan or credit card, but they affect you if you’re buying a house, taking out a mobile phone contract and even getting a job. So, even if you don’t need a loan or a credit card right now, you may in the future – work on improving your credit score now.
Tips to Improve Your Credit
So, sadly, if you’ve found yourself in a position where you’ve got poor credit, the next step is working to improve it. It’s going to be challenging, but there are things that can be done to bring your credit score up to scratch. We will go into further detail about ways to improve your credit below…
- Check for Errors
When you receive your credit report, make sure you go back and check over all of the details on file. Something as small as having the wrong address on file could impact your credit score, so it’s essential to correct any incorrect information ASAP. If you spot a mistake on your credit report, you can dispute it with the credit agency. They will be able to remove it, within 28 days, or dispute your claim. It’s important to communicate clearly why this is an error and explain your situation to the credit agency. Your information and co-operation is key, and the dispute should be resolved within 28 days.
- Check Links
The same goes for if you’re linked to another person, financially. If you’ve got a shared loan or account, you need to check to make sure that your poor credit isn’t coming from the other half of the source. If a family member or partner’s score is bad, and it links to your score, then it could affect your own.
- Check for Fraud
If you have seen unusual activity in your credit history, i.e. someone applying for a loan in your name, then you need to flag this up immediately with the credit agency. Make sure your file is up to date with all your information and true credit history.
- Clear Debt
Any outstanding debt will directly affect your credit score. So, pay off any outstanding debt you may have. Guarantor loans can be used as debt consolidation loans, which clear all your debt into one payment. Paying off a guarantor loan can help rebuild your credit score too, as long as you meet monthly payments.
- Be on Time
Meeting your monthly bill repayments will help improve your credit score. If you’re missing or making late repayments on bills, it can damage your credit score. By paying all your bills on time, you’ll gradually improve your credit score.
- Stop Moving!
Believe it or not, moving to a new house a lot can factor into your poor credit score. Whilst moving affects your score, it also puts off lenders letting you borrow money. If you stay at one address for a notable period of time, you’re more likely to land a loan and improve your credit score (if ever so slightly).
- Sign up
By signing up to the electoral register, you can improve your credit score. In some cases, you’ll find it’s harder to get credit if you’re name isn’t on the list. Joining the register is an easy way to improve your credit. You can do so by visiting gov.uk
- Credit Building Cards
There are some credit cards available which are designed to help you improve your credit score. By paying your credit card on time, you could effectively improve your credit score. The interest rates are a little higher, so if you can repay the balance in full each month it is ideal.
Unfortunately, any CCJs you may hold will have an extreme impact on your credit score. It’s a detriment having outstanding CCJs, especially for debt. If you are struggling to meet repayments on loans or credit cards, there are loads of places you can seek for free and independent advice. We have listed some services below that can help you with debt management advice.
You should try and avoid expensive ‘credit repair’ companies too, they’ll claim to have all the information to assist you in rebuilding your credit score, but all the information they provide is available with your free credit report, and in this post. They’ll tell you exactly the same thing we’ve explained here, so try and avoid falling for their services, as they are pricey.
For more information on credit scores and advice, you can go to sites like Which? and Money Saving Expert.
At TFS Loans, we provide guarantor loans to those with bad credit. It’s a good way to borrow money, for debt consolidation or any other legal purpose, if your credit is less than desirable. Not only do guarantor loans have a fairer rate then other bad credit lending options, but they can improve your credit score over the course of the repayment. Remember, it’s better to work on improving your credit now, as opposed to leaving it. Work on improving your credit score today!
For more information on guarantor loans or credit scores, visit our FAQs page.
TFS Loans are specialist Guarantor Loan lenders. A Guarantor Loan is a form of loan that requires someone to act as the Borrower’s Guarantor. We offer Guarantor Loans from £1,000 to £15,000, over 1 to 5 years. Our representative APR is 39.9%.