Whenever you want to take out a line of credit, whether that is for a home loan, car loan,
business loan, or credit card, your potential lender will check your credit score. Your credit
score is a number based on various factors and criteria that represent your ability to be trusted with some type of credit. The higher your score, the better your chances of approval, and the ability to obtain better interest rates.
How Your Credit is Calculated
The major credit bureaus in the United Kingdom are Equifax, Experian, and Transunion. Each of these agencies will calculate your scores using different criteria and formulas. Common factors that are considered include the amount you owe on loans, your payment history, bankruptcies, length of credit history, electoral registry information, etc.
Each factor is rated on a different scale. Experian measures your credit score on a scale of 0-999, Equifax measures your credit score on a scale of 0-700, and Transunion measures your credit score on a scale of 0-850. That means you could show 700 on one scale but 500 on another, even if they have the same information and the scores mean the same thing. There is no universal credit score, each score is uniquely created to measure your worthiness of a loan.
This process can make you feel confused and unclear on your understanding of where you stand and what you should look at to improve your credit score. While it may seem complicated, there are many ways you can understand and improve your credit score without causing you a headache.
Understand Your Credit with Free Credit Reports
The very first step you need to take to improve your credit score is to understand what your credit score currently looks like. You can obtain a free credit report from online websites such as Credit Karma and Money Supermarket. These agencies will provide a score check from the three main credit bureaus without showing a credit inquiry on your report.
When you input all your information, your overall score (average score) will pop-up along with a breakdown of the different factors that impact your score. You can further check into each of your score factors to understand why your score looks the way it does. It will show outstanding collections, the number of open accounts, the current debt you carry and will provide suggestions on how you can better your credit. Remember, these numbers give you an indication of where your credit currently stands and should be used as a resource to understanding your score.
Check for Mistakes on Your Credit Report
Make sure all the information on your credit report is accurate. Check through all debts, loans, and credit card information to make sure that they belong to you. If the debt or information does not belong to you, you can dispute this information to get it removed from your credit report.
Wrong information on your credit score can happen for several reasons. If you share a similar name to another person in your family, or if someone has stolen your information and opened fraudulent accounts under your name, you may see the wrong information. It could also be as simple as an account that belongs to you but is showing an incorrect balance or payment status.
When disputing this information, credit bureaus will investigate the claim to see if it is valid which can take anywhere from a few days to a few months. Once the investigation is finished, the debt will be removed from your report if they deem that the debt does not belong to you. This will boost your overall score.
Be Timely on Your Monthly Payments
If you’re not paying your bills on time, expect your credit score to go down. Late payments are reported to the credit bureaus and will impact your credit score. While most creditors won’t report one late payment, some will. It’s best to schedule your payments ahead of time and dedicate a special account dedicated to your bills, so you never have to worry about missing payments.
If a special circumstance hinders you from being able to make your monthly payment, contact your bill provider immediately. Often, they can offer an extension on the payment of your bill or can work with you to find a lower payment solution. If you don’t try to work it out and allow those payments to add up, you could risk having your account go to collections. Once it’s in collections, a permanent mark is put on your credit score that damages your overall credit until it's paid off. It’s best to avoid your late payments getting to that point.
Keep Your Credit Utilization Low
Credit Utilization is how much of your credit limit is being used. If you have credit cards, try to keep your utilization at 25% or lower. For example, if you have a £10,000 limit on your credit card, you don’t want to keep more than £2,500 on your card. Keeping a lower balance will positively impact your credit score.
Stay at your Job and Home Address Longer
Your home and job history can play a big part in whether you’re approved for a loan or not. Long periods of work and housing history look better on your credit score. This shows that you can consistently hold down a job while paying rent or mortgage and is a safe sign to creditors that you’re trustworthy.
Talk with a Credit Score Professional
If you’re working on your credit score and you can't seem to get your score to budge, it may be time to start talking to a professional. Credit repair companies can help find a clear path to boost your credit score by providing a deep analysis of each credit factor. While free online resources will touch the basics of your score, credit repair companies will look deep into every debt, collection, and mark on your score to see how you can improve your rating.