When you’re taking out any form of finance, you’ll undoubtedly see lots of mentions of your credit score or credit rating. And while you may realise that you’ll probably need a good credit score in order to obtain a loan and get the best interest rate, how to achieve this isn’t always obvious. You might not know what your credit score is, let alone how to improve it! So if you’re looking to take out credit, whether it’s car finance or a personal loan, we’ve outlined everything you need to know about your credit score below!
What is a Credit Score?
Your credit score is a number calculated from the details recorded on your credit file. It can help lenders decide whether to lend to you, the interest rate they’ll charge, and how much you’re able to borrow. Basically, your credit score can use past information to predict the chances of you making future payments.
So if you have negative marks on your credit file, such as a couple of missed payments, finance providers may decide not to lend to you, or charge you higher interest rates. This is because they believe they’d be taking more of a risk in lending to you.
Information on My Credit File
Your credit file, also called a credit report, contains information regarding your credit history. It’s essentially an overview of how you manage your money, and lenders will use this in order to determine the likelihood of someone being able to keep to a new credit agreement. Your financial information will stay on your credit report for six years, so negative marks may affect your creditworthiness for some time.
In terms of what financial details are recorded on your credit file, these include:
- Previous loans and credit cards
- Mortgages and rental payments
- Mobile phone contracts
- Utilities, such as electricity, gas and water
Your credit report will also contain things like your full name, current and previous addresses, as well as your date of birth. Any people with financial connections to you will be listed too, such as if you have a joint bank account or mortgage with someone.
You can check your full credit report by requesting it from Experian, Equifax or TransUnion - the UK’s three primary credit reference agencies. You may have to pay a small fee, but this shouldn’t be more than a few pounds. And rest assured that checking your own credit file won’t impact your credit rating, as this would be considered a ‘soft search’.
How to Check My Credit Score
What a lot of people don’t realise is that you don’t simply have one credit score. Lenders will use information on your credit file to determine your credit rating, so each time you apply for credit, you may get a slightly different score. But you can still get a good idea of what your credit score is like using a number of different websites and apps. For example, you can check your credit score for free using sites like Credit Karma or Experian.
What is a Good Credit Score?
As mentioned above, you don’t just have one credit score - each lender will have their own criteria for calculating your credit rating. But if you have a good credit score with one of the three main credit reference agencies, the chances are, you’ll also have a high rating with a finance provider. A good credit rating with each of the UK credit reference agencies is as follows:
- TransUnion - 781 out of 850
- Equifax - 420 out of 700
- Experian - 880 out of 999
If you have a higher rating than any of these, you could even have an excellent score. And don’t forget that even if you have what’s considered to be a bad credit rating, you may still be able to take out credit. There are many lenders who specialise in bad credit loans, even when it comes to car finance.
How Can I Improve My Credit Rating?
There are a number of different ways in which you can boost your credit score. We’ve listed some of the best ways to improve your credit rating below:
- Check for Mistakes on Your Credit File: It’s important to check your credit file to see if all the information is correct. While fraudulent activity is rare, it can happen, so make sure the details are accurate and up to date
- Prove Where You Live: When it comes to accurate information on your credit report, this includes your current address. So something as simple as registering on the electoral roll can actually help improve your credit score
- Pay on Time: If you have any existing credit or regular payments, do your best to pay these on time and in full. Your recent credit history is generally the most important, so once you’re on track, lenders are more likely to consider an application
- See If You’re Financially Linked With Anyone: If you have a joint credit or bank account with a spouse, family member or friend, their credit score could be impacting yours. You may wish to help them improve their own credit rating, or even close down the joint account
- Find Out If You Can Get an Instant Boost: Organisations like Experian can use data outside of your credit file, such as your Netflix subscription, to demonstrate you’re financially responsible. They can then use this information to boost your score
How Long Will it Take to Increase My Credit Score?
Unfortunately there’s no easy answer to this question. For most people, the simple tips listed above will have a fast impact, and they’ll see an almost immediate improvement to their credit rating. But if you’ve already got a fairly good credit score, it can take longer to see significant results.
It’s also good to bear in mind that negative marks on your credit file generally stay there for six years. So lenders will be able to see any missed or late payments, even if they were from years ago. But this won’t necessarily harm your chances of getting a loan - most finance providers only really concentrate on your recent credit history when making a loan decision.
Overall, it’s sensible to keep an eye on your credit rating, to keep on top of it and to see if the techniques you’re trying to improve your score are working! Regularly checking your full credit report isn’t a bad idea either, just to make sure all the information remains accurate.