Discover what is a credit score. If your score is low or if you do not have enough credit history, with my 11-point check list, I'll provide you with actionable techniques you can take to get a good credit score and learn about the advantages of having good credit to place you in the best position to be approved for competitive
rates of interest and offers on products
and services
What does a credit score mean?
What are the characteristics of a good credit score?
Find different ways to access your credit score for free!
How to improve your credit score
How a good credit score can help you.
So let’s dive in
Chapter 1
What is a credit score?
A credit score will be found in a credit file which will hold a credit report. The report is based on the record of your credit history with lenders and creditors from banks, credit card companies, pay later credit, utility companies. The report will show how you have borrowed credit and repaid the credit in the past. Your credit score is a three-digit number which is applied based on the information held in the credit report. It will show how risky it would be for a lender or credit to provide you with credit.
Chapter 2
What is a good credit score?
From the chart, credit scoring for each credit reference agency follows the same pattern. Higher scores are viewed more favourably. Most lenders and creditors would consider a higher score to qualify for some of the lowest rates of interest and a wide availability of competitive offers to you.
CREDIT SCORE
Chapter 3
How to get your credit score for free
You can access your credit score for free from the three main credit reference agencies Experian, Equifax and TransUnion. Other companies may be able to provide your credit score for free with credit score checking tools, some may ask you to sign up for a paid service to get your score.
Why should you understand your credit score? In a research conducted by the Financial Conduct Authority (FCA) it found that consumers often have difficulty in interpreting their credit information and what actions to take to improve it. Consumers who are less aware or have lower credit scores may avoid applying for credit or resort to high-cost credit options. On the other hand, consumers who are more aware of their credit information are more likely to shop around for credit products and services and be in the position to negotiate better deals.
Chapter 4
What is a good credit score?
Follow the checklist below to optimize your credit score
1. Electoral Roll
Register you name and address on the council’s electoral register when your live as being eligible to vote.
2. Pay your bills on time and in full each month.
You can set up a direct debit for the money to come out of your bank account each month on a date suited for you. It’s a good way to show creditors that you are reliable and responsible.
3. Fix errors on your credit file
Check your credit report for any errors, mistakes, or even fraudulent activity against
your identity. You can obtain a free copy of your report from all of the credit reference agencies once every 12 months. If you spot any discrepancies, contact the lender, creditor or company, and report the issue. Request for the discrepancy to be corrected and updated on your report. You can also file a dispute with all three credit reference agencies and provide any documentation to support your claim. They will check your claim with the lender. If the lender agrees, the credit reference agency will update your credit file. They will have 28 days to inform you whether the data has been corrected, removed, deleted, or left unchanged.
4. Monitor your file for any link accounts.
These are accountsthat you share with another person, as their financial debts may impact on your credit score. If there is any negative information, you may wish to inform the credit reference agencies with supporting information and request that they add a Notice of Correction to your credit file. A Notice of Correction will help to improve your score.
5. Build your credit history.
Old well managed accounts improve your credit score. The longer you maintain bank accounts and keep active for as long as possible, it will show a sign of stability. Closing old accounts and opening new accounts will reduce your credit score. You should only close off old accounts if it makes good financial sense for your plans.
6. Reduce your credit utilization.
The lower percentage that you use on the credit available to you will generally increase your credit score. The recommendation from the credit reference agencies is that you should try to keep your overall credit utilization to about 30%. That will reflect well on your credit score. You can lower your credit utilization by paying off your balances, increasing your credit limits or reducing your spending.
7. Avoid making frequent hard searches.
Credit enquiries count towards your credit score. Examples of hard searches are credit card applications, loan applications. The lender or creditor will ask the credit reference agencies to view your credit report. If there are too many applications, this could harm your credit score and make it look like you’re desperate for credit. Consider using an eligibility checker via comparison websites to carry out a soft check on yourself to see if you are financially eligible for products such as credit cards or loans and the interest rate you might get. The soft check will not appear on your credit report only to you and will not affect your credit score.
8. Apply for more credit.
To have a credit score you have to have credit. Open a credit card to build your credit score. Use the credit card every month for small everyday purchases and make the repayments every month on time to avoid paying any interest, which can be very high. Make sure that you don’t go over the credit utilisation level of 30%. The process to build up a good credit score will take time, between 6-18 months. A basic credit card will do particularly well if you already have a damaged credit file with any ccj and defaults . This will go a long way to diluting any negative information that is present on your credit file.
9. Join a Rental Exchange.
If you are a renter, there is a scheme where the credit reference agencies Experian and Equifax will work with large social housing landlords, private letting agencies. The landlord can request to have your rent payments reported to the credit reference agencies to build your credit history to enhance your credit score making it easier to apply for credit.
10. Experian Boost.
This is a relatively new scheme and it’s unclear whether the lenders or creditors are taking this into account when deciding to provide you with credit as each will have different criteria and expectations when evaluating your eligibility for products and services. The Boost allows you to set up an account with Experian. You can connect your bank account, monthly streaming service subscriptions and council tax to the account. This will automatically increase your credit score to show it as a way that you are able to manage your payments responsibly.
11. Authorised user on a credit card account.
Become an authorised user on someone’s credit card accounts. You don’t need a separate account as the account will belong not to you but the primary cardholder. Becoming an authorised user can increase your credit score if the primary cardholder has a good credit history and pays the bills on time. It will have a triple effect:
A. increase your credit mix of different types of credit.
B. increase the length of your credit history.
C. reduce your credit card utilization.
You can always remove yourself from the account if you feel that the primary user’s activity has a negative impact on the card’s use.
Chapter 5
Benefits of having a good credit score
can help you get lower rates on credit cards and loans, which means that you can save money on interest payments over time.
can improve your chances of qualifying for a loan, credit card for purchases such as a car or a house.
can give you more negotiating power with lenders, creditors for credit cards, loans, mortgages, in terms of asking for lower fees or better terms.
can make it easier for you to rent a flat from a landlord or letting agency. They will use it to access your reliability as a tenant.
can give you more negotiating power with service providers in terms of asking for lower fees or better terms for mobile phone contracts, home or motor insurance premiums, energy utilities.
can give you more negotiating power with service products in terms of asking for lower fees or better terms for purchasing a car, domestic appliances.
The research conducted by the Financial Conduct Authority found that on average that 73% of consumers who have taken steps to improve their score have seen their credit score increase over time. And I agree. From our client experience, the following case study highlights the bottom line is that from this checklist they have learnt and implemented short quick winnable steps which has had the most positive impact to getting approved by lenders and creditors.
Now it’s your turn.
There you go, my guide to understanding what a credit score is and how it is linked to your financial history in terms of credit borrowed, repayment, reliability, and responsibility. What practical tips have you found useful, and which one would you apply to improve your own credit score?
Are you going to make sure that your name and address are registered on the electoral roll?
Or you’ll consider making a soft check to for credit eligibility.
Or reduce your credit card utilisation to below 30%
Let me know. Or if you are looking for help with auditing your credit file to provide the best possible results for your credit score, look no further. Just drop us a line below.
Winnie Onyekwere LLB LLM
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