A credit score shows a bank how good you are at paying back money – it’s essentially your reputation in the money world.
So many of us neglect to find out what our credit score actually is though, assuming it’s fine or something to worry about later down the line.
A study on 2,000 Brits by money platform Intuit Credit Karma found that people in their 20s have the worst credit denial, thinking their scores are better than average when they’re often worse. What’s more, 22% of this group didn’t know what their score was and found it confusing.
So, at this point you should be wondering: How can I find my score out?
You can use services like Experian, Equifax or TransUnion, and possibly even your bank. When you check, it’s called a soft search, which means it won’t affect your rating. A hard search however, will impact your score.
Mamta Shanbhag, borrow director at Tesco Bank, explains: ‘Hard checks happen when a company makes a complete search of your credit report, for example when applying for a loan, mortgage, or even a monthly contract for your phone.
‘It’s worth knowing that a hard credit check, following your permission, will be visible to anyone checking your credit report, and can affect your credit score for at least 12 months.’ You can reduce hard checks into your report by making as few credit applications as possible.
Simple things can help improve your credit score, like registering on the electoral roll (yes, this affects it) and paying off bills on time on a credit card.
Experian has recently overhauled its credit score system so now include rental payments.
It might sound obvious, but a lot of people have a basic understanding and don’t implement it. Tesco Bank found that just 22% of people use their credit cards to help build up their score, despite it being one of the easiest ways to make an improvement.
Shanbhag says it’s good to get into the routine of checking your score once a year.
‘Without a good credit score you increase the chances of your application being turned down. If you are accepted with a low credit score you may be offered a less favourable rate of interest, meaning you’ll have to pay more back over time,’ she adds.
And don’t assume that if you’re not in debt you automatically have a good score. ‘If you have no or little history of borrowing you’ll still have a low credit score, as you haven’t yet built evidence of being a reliable borrower,’ says Shanbhag.
Nik Charalampous, CEO of free credit score service CredAbility, says that his research shows 16.6million Brits, which is almost a third of UK adults, have never checked their score. 31.4million don’t understand how a soft search works.
So many people ignore their credit score, Charalampous says, because they’re confused by it.
‘Ignoring your score is like never checking your bank balance; you’re left in the dark about something that can seriously affect your financial options,’ he says.
According to his research, 28% of people have made big credit decisions without checking their eligibility first, which can damage their score if they’re turned down.
Charalampous recommends keeping your credit use to below 30% of your limit if you can.
‘Avoiding multiple credit applications in a short period could add up to 125 points, and keeping credit card balances low can add up to 95 points,’ he says.
Tips to improve your credit score, as told by financial podcaster Vix Leyton
Keep an eye on it, it needs regular attention
It might feel tedious, but it’s worth it. A wrongly flagged missed payment can shave points off for years. Each agency has a free dispute process, and it’s worth kicking it off even if you don’t expect your credit score to be needed in your immediate future, as it can take a while.
Space out your credit
Be mindful of how your activity looks. If you’re applying for a mortgage, car finance, and a loan in quick succession – even if it’s all legitimate life stuff – it can resemble “panic applying” to a lenders’ algorithms. Try to space big credit applications out if you can, and utilise soft searches to hone in on products you’re most likely to get.
Treat BNPL like credit
Paying on time can show positive payment behaviour; missing even one can do long-term damage. Whilst BNPL is not currently reported to credit referencing agencies as standard, regulations are tightening around these loans so future-proof now.
Be predictable
Stability helps: same address, steady job, registered to vote. It all adds up to a trustworthy profile, but don’t worry too much if there is an unavoidable dip due to life changes like a move, you’re playing a long game.
Open banking will soon make regular subscription payments, such as Netflix or Spotify, a potential part of how financial reliability is measured. Consistent small payments can really showcase your reliability.
Check your associates
There are a lot of misconceptions about what does and doesn’t impact your score, including whether your household can indirectly damage your score. Your score is personal to you, so simply living with people won’t have an effect, but if you do have joint bills or accounts then that association might be taken into account depending on what you’re applying for; so if you have dormant joint accounts with an ex or a previous housemate, close them up.
Don’t despair if it’s bad
The road to recovery might feel long if you’re on a low score but there will be quick wins along the way, every month of good banking behaviour will chip away at it, and score hits like missed payments dropping off after six years. If you’re looking to make a move that your credit score doesn’t support, like applying for a mortgage, don’t assume it’s an automatic no, but don’t just blindly hope for the best and apply anyway; check out the small print on things like mortgages, talk to an expert and do your research.
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