Whether you’re looking to get a loan, buy a house, or even just set up a mobile phone contract, your credit score will play a part. The world of credit scores and reports can feel a bit confusing. In this blog, we’ll cover where you can find your credit report, how to understand your score and crucially, how to improve it.
What is a credit score?
Your credit score is a number that represents how reliable you are with money, specifically when it comes to borrowing.
It’s the information about your borrowing habits that matters, rather than the number. In general the higher your score, the more likely you are to have applications accepted for things like loans, credit cards, or a mortgage.
In the UK, your credit score is calculated by credit reference agencies like Experian, Equifax, and TransUnion. They collect information like:
your history of paying bills - whether you pay on time;
your credit history - if you have outstanding loans, credit cards, or other types of borrowing; and
how much of your available credit you use - whether you ‘max out’ your credit card or bank overdraft every month.
The credit reference agencies then use this information to give you a single number which is your credit score. Agencies collect different bits of information and weigh them against criteria in their own way. This is why the number can differ from one agency to the next. The important thing is that your scores all point in the same general direction.
What is a good credit score?
Here’s a rough breakdown of the three main credit score agencies:
Experian - scores range from 0 to 999. A ‘good’ score is anything from 881 to 960, and an ‘excellent’ score is 961 or higher.
Equifax - their scores range from 0 to 1000. A ‘good’ score is between 531 and 670, and an ‘excellent’ score is 811 or above.
TransUnion - this one ranges from 0 to 710. A ‘good’ score sits between 604 and 627, and ‘excellent’ is 628 or above.
The general rule of thumb is the higher the score, the better. Individuals with ‘good’ or ‘excellent’ scores are more likely to get approved for credit. Plus, they may be offered better interest rates. If your score is low, don’t worry. It’s not permanent, and there are plenty of ways to improve it.
How do you improve your credit score?
1. Be patient - building or improving your credit score doesn’t happen overnight. Chipping away in the right direction consistently means you’ll eventually notice positive changes.
2. Pay bills on time - lenders want to know you can be trusted to pay back what you owe. Missed payments or late payments can hurt your score more than you might realise. Setting up direct debits can help you pay on time.
3. Keep your credit utilisation low - credit utilisation is how much of your available credit you’re using. For example, if you have a £1,000 limit on your credit card and you regularly spend £900 of it, that’s 90% utilisation. A general rule of thumb is to use less than 30% of your available credit. This can show lenders you’re not too reliant on borrowing.
4. Register to vote - lenders use the electoral roll to confirm your identity so make sure you’re on it. If you can’t register to vote for any reason you can add a note to your file asking lenders to contact you for other official documents.
5. Avoid applying for lots of credit at once - every time you apply for credit, it leaves a ‘footprint’ on your credit file. Too many applications in a short space of time can impact your score. Space them out if you can.
6. Check for and fix any errors - mistakes can happen. Maybe a payment is listed on your credit file as ‘missed’ when it wasn’t. It’s worth checking your file once a year and contacting the agencies to put things right if you notice an error.
7. Track regular payments - through open banking, some credit reference agencies can now track regular payments to services like Netflix, Amazon etc. You can also ask them to record your rent payments too - it’s all evidence.
8. Consider a credit-building credit card - this is the one to be careful with. It’s not a ‘fix all’ option and needs to be properly managed. If your score is low or you’ve got little credit history, a credit-builder card can help. The trick here is to spend small amounts and pay off the balance in full every month. Over time, this can show lenders you’re reliable with credit but beware of overspending.
A low score isn’t the end of the world, it’s just about showing lenders that you’re responsible with money. Your credit score doesn’t have to be a worry, and improving it doesn’t have to be a mystery.
Find out more about credit scores on Episode 31 of The Pension Confident Podcast. You’ll hear from Consumer Affairs Manager at credit reporting company Experian, John Webb; Clare Seal, an Author and a Columnist and a Content Creator; and Luis Mejia VP Data from PensionBee. You can listen to the episode, watch on YouTube or read the transcript.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
