What is a credit score?
A credit score is what is used to define whether you are a responsible borrower of money. You’re essentially ‘scored’ on your ability to manage credit repayments, and how much money you borrow. Your credit score can significantly impact your ability to obtain credit, such as loans, credit cards, mortgages, and more, along with the interest rates and terms offered.
A good credit score is extremely helpful when applying for a mortgage, as lenders feel more confident lending to a borrower who has demonstrated exemplary credit management.
So how can you enhance your credit score in 2024? We’ve got a range of helpful tips and advice to help you improve your credit rating and improve your chances of credit approval. We’ll also deep dive into the nuances of credit scores to help you understand exactly what your credit rating means.
What is a good credit score?
Typically, a good credit score is considered to be around 670 or higher according to the FICO model. However, it’s essential to note that various lenders and credit bureaus may have slightly different criteria for defining a good credit score.
Different credit score checkers, such as Clearscore and Experian, also have different scoring methods, so note your credit score may not be the exact same on every credit score rating tool.
A high credit score demonstrates responsible credit management, making it easier to qualify for loans and credit cards with favourable terms, such as lower interest rates and higher credit limits.
You should regularly check your credit score, especially if you are planning to apply for credit, such as a mortgage. This way you’ve got some time to make any credit improvements, such as clearing off a credit card balance, before applying for new credit.
When you apply for credit, some lenders will do a ‘hard search’ which can impact your score negatively, so it’s good to be in a good position with your score before applying.
What is a bad credit score?
A bad credit score is a low credit score that indicates a higher risk to lenders. Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. A bad credit score is generally considered to be below 580 or so, although this may vary depending on the specific scoring model used.
Having a bad credit score can make it more difficult to obtain loans, credit cards, or other forms of credit, and may result in higher interest rates or less favourable terms when credit is extended. One major factor that can contribute to a bad credit score is late payments or a poor payment history. If you miss a payment by 30 days or more, it can stay on your credit report for 7 years.
If you have a bad credit score, you should take a look at what’s causing you to have a negative score. Have you got too many large debts? Have you struggled to make repayment dates? Did you recently get issued a CCJ? By checking and amending these issues, you’ll be on your way to improving your score.
Why has my credit score gone down?
There could be several reasons why your credit score has gone down. Some potential factors to consider include:
- Late or missed payments: If you have recently made late payments or missed payments on your credit accounts, this can negatively impact your credit score.
- Increased credit utilisation: If you are using a higher percentage of your available credit, this can also lower your credit score. It is generally recommended to keep your credit utilisation below 30% of your total available credit.
- New credit inquiries: When you apply for new credit, such as a loan or a new credit card, the lender will typically perform a hard search on your credit report. Multiple hard searches within a short period of time can lower your credit score.
- Negative information on your credit report: If there are negative items on your credit report, such as collections, bankruptcies, or foreclosures, these can significantly impact your credit score.
- Age of accounts: The length of time you have had open and active accounts can also affect your credit score. Generally, longer account histories can be beneficial for your credit score.
It is important to regularly review your credit reports and identify any factors that may be contributing to a decrease in your score. By addressing these issues and making responsible financial decisions moving forward, you can work towards improving your credit score over time.
How can I find out my credit score for free?
There are several ways to check your credit score for free. There are lots of credit monitoring services to choose from that provide free access to your credit score and will alert you of changes. Many banks and credit card companies also offer free credit score services to their customers, check your banking app to see if yours has this feature.
Additionally, you can request a free copy of your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) once a year through AnnualCreditReport.com.
While the credit report does not provide your numeric credit score, it offers detailed information about your credit history, aiding in understanding your overall creditworthiness.
Check your credit report regularly
Your credit report includes details such as your personal information, accounts, payments, balances, and inquiries. Lenders need to check your report, as it helps them assess whether they can trust you to repay credit or loans.
Check your report free with the three main credit reference agencies in the UK: Experian, Equifax, and TransUnion.
Utilising one of these services allows access to your credit report and score from multiple sources in one place.
Regularly checking your credit report can help you:
- Understand your current credit situation and how to improve it
- Identify and rectify errors or inaccuracies that may lower your score
- Monitor your progress and observe the impact of your actions on your score
- Detect and prevent fraudulent activity or identity theft on your accounts
Pay your bills on time and in full
Paying your bills on time and in full each month is crucial for maintaining a positive credit history, demonstrating your creditworthiness, and ensuring the timely repayment of debts. This practice can help you:
- Build a positive credit history
- Avoid late fees, penalty charges, and negative marks on your report
- Maintain or improve your credit score
- Save money on interest and reduce debt faster
Keep your credit utilisation low
Credit utilisation, representing the percentage of your available credit that you are using, is a significant factor influencing your credit score. Maintaining a low credit utilisation can assist you in:
- Improving your credit score, as a lower percentage is viewed more favourably by lenders
- Avoiding maxing out credit cards or overdrawing accounts
- Having more credit available for emergencies or unexpected expenses
- Reducing interest charges and paying off debt faster
Limit your credit applications and inquiries
Every credit application involves a credit check, leaving a footprint on your credit report known as a hard search, which can temporarily lower your credit score.
Excessive credit applications and searches within a short period of time can negatively impact your credit score, which can make lenders think you’re experiencing financial difficulties, so they may deny your application.
Limiting credit applications and searches, especially for those with minimal credit history, or using and managing an arranged overdraft carefully, can help to improve your credit score over time. This is because maintaining accounts and having a longer average age of active credit accounts can positively affect your credit score.
- Preserve your credit score and avoid unnecessary score hits by carefully managing credit
- Prevent rejection and disappointment, as applying for credit you are unlikely to qualify for can damage your score
- Shop around for the best deals, as some lenders may offer a soft inquiry, not affecting your score, for a quote or eligibility check
Use Experian Boost to get an instant score boost
Experian Boost is a feature that allows an instant credit score improvement by securely connecting your current account to your Experian account. It recognises positive financial behaviour, such as timely payments to Council Tax, contributions to savings or investment accounts, as well as utility bills, and mobile and phone contracts. Utilising Experian Boost can:
- Increase your credit score by up to 66 points, depending on your circumstances
- Present lenders with a more accurate and comprehensive view of your financial situation
- Improve your chances of credit approval at better rates and terms
To use Experian Boost, you need an Experian account and a current account with a UK bank or building society. Signing up is free, and you can link your accounts within minutes.
Summary
Improving your credit score requires time and effort but it is well worth it to open up more borrowing opportunities and improved credit terms. By taking on board our tips and advice provided, you can elevate your credit rating and enhance your prospects for credit approval in 2024.
Should you require assistance or guidance with your credit score, feel free to contact us. Collaborating with a panel of leading UK lenders, we provide professional advice and guidance to help you make informed decisions and comprehend any potential financial links impacting your credit score.
Don’t let a low credit score hinder your progress. Improve your credit score today and achieve your financial goals in 2024.
