Building a good credit score, also known as a credit rating, is crucial because it can affect your ability to borrow money or access products such as credit cards or loans. You can check your score for free and if it isn’t in the best shape, there are things you can do to improve it.
What is a credit score?
Your credit score is created from information held in your credit report, also known as your credit file.
The exact number of your credit score can differ between lenders or even between different products from the same lender, depending on the criteria used in assessing you as a potential customer.
The information held on your credit file and your credit application form might be used to decide:
- whether to lend to you
- how much to let you borrow
- how much interest to charge you.
The most recent information on your file will have the most impact, as lenders will be most interested in your current financial situation. That said, your financial decisions, good or bad, from the last six years, will still be on record.
If your credit report shows a few missed payments, you might be charged higher interest by lenders or might not be eligible for some loans.
This is because lenders believe they might be taking a higher risk when lending to you.
Your credit history can affect your ability to get things like insurance or begin mobile phone contracts.
Regularly checking your report is a great idea, because it can help you spot any fraudulent activity or mistakes on your report.
How do I check my credit score?
There are three main credit scoring agencies in the UK: Equifax, Experian, TransUnion.
You can request full details of your credit file for free or simply get your score online, which is also free. The main difference between the full credit file and online versions are that the credit file versions let you have a paper copy sent to your address, while the other is only available online.
Each charge to access their services, although it’s possible to access for free through their partner sites.
Credit score membership
A subscription membership with one of the main credit agencies might allow you to gain more up-to-date information on your credit history.
Some of the memberships might also give you access to agents who can look into your file.
But remember to set up a reminder to cancel your membership if you’re on a free trial and don’t want to pay the monthly subscription once this ends.
Full statutory credit report
You have the legal right to see a copy of your credit report for free.
You can request this from any credit reference agency that holds information on you.
What information is in a credit report?
Each agency holds slightly different information about you, so it’s worth checking all three for a more accurate picture.
In general, your file will include:
- name, address and date of birth
- some search footprints on your file, such as credit applications
- financial links to other people - for example, a joint loan or bank account
- any late/missed payments or defaults
- how much money you owe to lenders
- any County Court Judgments (CCJs) against you that are not paid in full within one month of receiving the notice
- if you’re on the electoral register at your current address
- if you have been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).
It won’t include the following information:
- your salary
- student loans
- medical history
- criminal record
- council tax arrears
- parking or driving fines.
However, you might be asked for this information when applying for a loan or contract.
They might then choose to use this information alongside your credit report to assess you.
What is a good credit score?
Different lenders have their own standards for rating credit scores.
However, if you have a good score with one of the main credit reporting agencies, it’s more than likely you’ll have a good credit score with your lender.
A good credit score with:
- TransUnion is scoring 4 out of 5
- Equifax is scoring over 420 out of 700
- Experian is scoring over 880 out of 999.
But remember: your credit score doesn’t guarantee that you’ll be approved for credit or offered the lowest interest rates.
This is because a lender’s decision is not made solely on score.
So, if you’re looking for a card or loan and are worried you might be rejected, it’s a good place to start your search.
How long will it take to improve my credit score?
In general, credit history is built up slowly over time as you increase the number of on-time payments you make.
The longer the bill goes unpaid, the greater the likely impact on your credit score. Keep a close eye on your credit score to help spot issues.
Most negative marks will remain on your file for at least six years. After that time, everything is deleted from your file, including missed payments, defaults, bankruptcy and CCJs.
However, there are some quick improvements in the next section that you can make today to begin raising your credit rating.
How can I improve my credit rating and credit score?
If you have a low credit rating, there are several things you can do to start improving your score today:
Register on the electoral roll: if your name’s not on there, you’ll find it much harder to get credit. You can register to vote online or by post.
Check for mistakes on your file: even having just a slightly wrong address can have an impact on your score. So, make sure you check all the details and report any incorrect information immediately.
Pay your bills on time: paying on time a phone landline or internet contract is a great way to prove to lenders that you’re capable of managing finances effectively.
Check if you’re linked to another person: having a spouse, friend or family member’s credit rating linked to yours through a joint account could affect your personal rating if they have a poor score.
Check for fraudulent activity: if something on your credit report is incorrect or doesn’t apply to you, i.e. if someone applied for credit in your name without your knowledge, contact the credit reference agency immediately to have your file updated.
County Court Judgements (CCJs): receiving any court judgements for debt will have a serious impact on your credit score. If you’re having problems keeping up with payments, find free debt advice online.
High levels of existing debt: ideally you should eliminate any outstanding debt before applying for new credit. This is because banks, building societies and credit card companies might be hesitant about lending you more if you already have a lot of existing debt.
Moving home a lot: lenders feel more comfortable if they see evidence that you have lived at one address for a considerable period. Be sure to bear this in mind.
If you’re struggling to improve your score, it might be worth considering signing up to a one-month free trial membership offered by the main credit agencies.
Consider getting a credit-building card
If you have a poor credit history, you might want to consider a credit-builder credit card.
These are cards designed for people with little credit history, or who have a bad credit history. The credit limits are often low and the interest rates high. This reflects the level of trust your credit file gives lenders.
By using these cards and paying off the bills each month, you can prove you’re creditworthy, increase your credit score, and apply for other cards and loans when your credit rating improves.
Be aware that the interest rates charged are much higher than standard credit cards though.
Typically, you’ll be paying over 30% in interest a year, which is another reason to try to pay off any balance in full each month.
Otherwise, you might end up in debt that you struggle to get out of which could harm your credit rating even further.
Avoid expensive credit repair companies
You might see adverts from firms that claim to repair your credit rating.
Most simply advise you on how to obtain your credit file and improve your credit rating - but you don’t need to pay for that, you can do it yourself.
Some might claim that they can do things that - legally - they can’t, or even encourage you to lie to the credit reference agencies.
Don’t even consider using these firms.
How to report and fix any mistakes on your file
If you do spot any mistakes, challenge them by reporting them to the credit reference agency.
They have 28 days to remove the information or tell you why they don’t agree with you.
During that time the ‘mistake’ will be marked as ‘disputed’ and lenders aren’t allowed to rely on it when assessing your credit rating.
It’s also best to speak directly with the credit provider you believe is for the incorrect entry.
Credit reference agencies rely on information provided by lenders and often the lender is in the best position to resolve this.
If there’s information on your file that’s accurate but doesn’t reflect your current situation - for example, you got into debt problems when you lost your job but you’re back in work now - you can add a ‘notice of correction’ to your credit report.
This is a statement of up to 200 words about what happened.
Recovering from credit fraud
If you’ve been a victim of identity impersonation or credit fraud, your credit score might have taken a hit. To improve your credit score after you’ve been a victim means taking many of the same steps above.
When you check your credit file, keep an eye out for a Cifas marker called a ‘Victim of impersonation’ notice. Having this on your file serves as a warning to future lenders that you’ve been a victim, or are vulnerable to becoming a victim, of fraud.
A CIFAS marker is put on your file by a lender who felt there had been an attempt at fraud using your identity. They are legally obliged to report this.
The marker will stay on your file for 13 months.
Having a CIFAS marker doesn’t affect your credit score and doesn’t stop you from taking out credit. It may, however, cause you to have some issues if you’re applying for credit that is processed automatically, like store finance. This is because your file would need to be reviewed and checked manually.