What affects your credit score and ways to improve it?

Credit scores influence most aspects of people’s financial lives and a poor score can reduce your chances of getting a financial product such as a credit card, loan, phone contract or mortgage.

Our research shows that less than half of people in the UK (46%) know exactly what a credit score is, so we’ve pulled together a guide to help you understand what affects a credit score and how to improve it.

What is a credit score?

A credit score is an assessment of how likely it is you would be able to repay money that you borrow. Different agencies have their own ways of calculating a score which is usually shown as a three-figure rating. Lenders, such as banks, use this information to assess whether you are able to borrow money and pay it back. A higher credit score means lenders see you as lower risk, so you’re more likely to be approved for credit and could have access to lower interest rate products.

Remember
  • There are two different ways to check your credit score; hard credit check and a soft credit check. A ‘soft search’ doesn’t leave a record on your credit file.
  • Using an eligibility checker is a way of being able to see how likely it is that you’ll qualify for financial products like a loan or credit card from different providers before you apply. This ‘soft search’ also means it won’t impact your credit score.
  • If you then apply to borrow money, the lender may do a ‘hard search’ which will leave a record on your credit report.
  • Things like previous occupants at your home address and your gender won’t impact credit score.

Tips on managing your credit score

1. Check, check, check

In the UK there are a number of credit agencies including Experian, Equifax and TransUnion UK who offer advice around credit reports and can also help you check your credit score through a ‘soft search’, usually for free. It’s also a good opportunity to double check that there are no mistakes on your file; if there are, you can get them fixed.

2. Build your credit history

Having little or no credit history can make it difficult for credit agencies to assess you, and your credit score may be lower as a result. By building a credit history (e.g. having a credit card) this will show lenders that you’re a reliable borrower, but remember;

  • don’t apply for too much credit at the same time
  • keep your usage low
  • avoid spending to the limit
  • make repayments on time
  • pay more than the minimum amount back
  • pay the debt back in full

Bear in mind, it’s a good idea to use something like an eligibility checker when you’re shopping around for financial products, so you know which products you’re more likely to be accepted for before you apply for the product. This reduces the chances of multiple ‘hard searches’ being made if you apply for lots of products that reject you.

3. Prove who you are and where you live

By simply registering for the electoral roll at your current address, you are proving where you live and who you are. It should only take around five minutes and may help improve your credit score; Register to vote - GOV.UK (www.gov.uk)

4. Talk about it

If you’re not sure where to start, there are many tools available online or over the phone to understand more about credit files, how to manage them and build a better record. Speak to your bank or Money Advice Service for more information. Credit reference agencies like Experian and TransUnion can also assist.

Pella Frost, TSB Director of Everyday Banking said:

“Your credit score impacts so many aspects of everyday life, yet many aren’t familiar with it. Understanding more about it can help you become more money confident and it will improve your chances of gaining access to credit when you need it.”

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