Credit Scores and How to Improve Them

The United Kingdom has three main credit reference agencies, they collect information based on public records, service providers, and lenders, helping them create a credit score. A credit score number shows how likely a consumer is to repay any money that they borrow. This is based on past history of using credit agencies and managing finances.

A high credit score shows that you are more likely to repay any debt and your chances of being approved are higher, though not guaranteed. A consumer won’t only have one credit score, as each agency uses different information with their own way of scoring. A credit score changes regularly, based on a consumers particular circumstances.

Many lenders and service providers also use their own scoring methods when a consumer applies for credit, using the information they find on your credit records, taking affordability, and past account history.

How Do Credit Scores Work?

A credit reference agency will collect information from numerous sources, all influencing a consumer’s credit score. This includes the type of accounts, which can be secured and unsecured lending, including home loans and credit cards. They use court records, looking for defaults and County Court Judgements (CCJ’s), along with Individual Voluntary Agreements and bankruptcy, which can have a negative impact on a credit score for six years.

The age of the credit accounts also plays a role in a person’s credit score. If you have an account for a long period of time, it shows that the consumer is good at the management of the accounts. The electoral register is also used to confirm identity and address. In addition to this, a persons spend also play a role in a credit score. It shows if the person has a lot of debt and how close they are to their credit limits. This shows that the person relies on credit.

Management of accounts is also used with lenders and providers reporting missed and late payments, along with if a person exceeds their credit limit.

How Are Credit Scores Used?

Credit scores are used when applying for credit from lenders or service providers. These companies contact their preferred credit reference agency to get a copy of a consumer’s credit record, which highlights risks. The credit score also influences the credit limit and interest rates offered.

Credit scores are routine for all credit applications from overdraft and car finance to personal loans and credit cards.

Each of the credit reference agencies uses different scales, but they all have the same general guidelines in place, the higher a person’s credit score the better. A guideline, using Experian, is that a credit score of 961 to 999 is considered excellent, 881 to 960 is considered very good and a score of 721 to 880 is considered good. At the same time, a credit score of 561 to 721 is perceived as poor, while 0 to 560 is considered very poor.

How Are Credit Scores Calculated by Lenders?

Lenders have experience assessing the eligibility of a borrower. They take numerous factors into consideration, in addition to a credit score. This includes the details you provide, both personal and financial information, such as employment status, expenditure, and income. They focus on affordability, ensuring you are able to make regular repayments, which are based on your income and expenditure and they will take a close look at account history to identify how the borrower manages their accounts.

Tips to Improve Credit Score

There are a number of things a person can do to improve their credit score, these include:

  • Pay all bills on time, including household bills, utilities and credit repayments
  • Manage all accounts well by staying within the credit limit and reducing debt balances
  • Limit how many short term loan applications you submit, whether approved or not. The more applications you submit within a short period, the higher the chances it will negatively impact your credit score
  • Register to vote, ensure you are on the electoral register.