If you’ve taken out any form of finance previously, you’ve probably heard of a credit score, even if you’re not completely sure what it entails. You’ll almost certainly be aware that having a good credit rating improves your chances of acceptance, and should mean better interest rates!
And when it comes to improving your credit score, this is not something that is regularly discussed outside of the financial industry. In this blog, we’ve therefore explored the different aspects of credit ratings, and how to improve yours.
What is My Credit Score?
Your credit score is a number that is calculated from the information on your credit report. This number can help lenders get an idea of your credit history at a glance, and may be a contributing factor to your chances of loan approval, as well as the interest rate offered. Essentially, your credit score can give an indication of your creditworthiness, and the likelihood that you’d be able to keep to a new credit agreement.
Things that can negatively affect your credit score are late or missed credit repayments, bankruptcy or insolvency, as well as any County Court Judgements (CCJs) listed on your credit file. And if you do have a low credit rating, lenders may decline your application, or charge higher rates. This is because poor credit scores generally mean more risk for the lender – someone with a history of late payments may not pay this lender back on time.
What is My Credit File?
Your credit file, or credit report, is made up of information about your credit history, as well as some personal details. Each of the three main UK credit reference agencies, Experian, Equifax and TransUnion, hold a copy of your credit report.
The information on your credit file will in most cases remain there for six years, so any negative marks could impact your chances of being accepted for a loan for some time. Such information includes:
- Your full name and date of birth
- Your current and previous addresses
- Loans and credit cards
- Your overdraft
- Mortgages and rental payments
- Mobile phone contracts
- Utility bills, such as gas, electricity and water
It’s also worth noting that if you’re linked with anyone financially, this will be recorded on your credit file. This could be someone who you have a joint bank account with, or is listed on your mortgage agreement.
How Can I Check My Credit History?
If you want to find out your credit score, you can check this for free online, using sites like Credit Karma or Experian. Just bear in mind that you actually have more than one credit rating – it will depend on which organisation calculates your score! Despite this, your credit rating generally falls into the same category each time – poor, fair, good, very good or excellent.
You can also request to see a copy of your credit file by contacting any of the three primary credit reference agencies in the UK. There may be a small fee for this, but it should only be nominal. And if you’re worried about impacting your credit score by essentially running a credit check on yourself, you can rest assured that your rating won’t be affected. This sort of check would be considered to be a soft search, which isn’t recorded on your credit file.
What Makes a Good Credit Score?
As mentioned above, your credit score will differ slightly, depending on which organisation is calculating it. But if you have a high credit rating with Experian, Equifax or TransUnion, this will typically mean that your credit score will be high with lenders too. So what constitutes a good credit score with each of these credit reference agencies? We’ve listed the figures below:
- Experian – 880 out of 999
- Equifax – 420 out of 700
- TransUnion – 781 out of 850
And if your score is higher than the numbers listed, that may mean that you have a very good or excellent credit rating. You may therefore be offered better interest rates than those with a lower score.
Even if you do have a lower credit rating, this doesn’t necessarily mean that you won’t be able to borrow money. Many lenders specialise in bad credit loans, from personal loans to vehicle finance. These lenders understand that your credit score won’t always be a true representation of how you manage your money, and a low score could be based on late payments from years ago.
How Can I Improve My Credit Score?
There are a number of ways in which you boost your credit rating, and some of them are probably simpler than you think! The first thing you should do is request to see a copy of your credit file, and check for any mistakes. Inaccuracies, such as settled loans being reported as being open, can impact your credit score. If you do find any errors, you can contact the credit reference agency, and ask for them to update their records.
Another thing you can do to improve your credit rating is to prove where you currently live, by registering on the electoral roll. As with other inaccurate information on your credit report, it’s important that your address is up to date.
It’s also a good idea to settle any old debts or accounts you’re no longer using. Lenders may look at your credit utilisation as well as your repayment history. And paying outstanding loans on time is essential too, as your recent credit history tends to be a bigger factor when lenders make a loan decision.
Once you’ve tried these simple tips to improve your credit score, you can then see if you’re eligible for other forms of credit, or better interest rates. And if you’re looking into vehicle finance options, Vehicle Finance Today are here to help!
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