Learn what your credit score is and how you can improve it through responsible borrowing.
A credit score is a rating that builds up over time based on how reliable you’ve been with repaying any debts and paying your bills. It’s a three digit number that helps lenders and businesses decide whether to take you on as a borrower and what interest rate or package to offer you. The higher your credit score, the easier it is to borrow, as lenders will trust you to pay the money back.
If you’ve never had a loan or credit card before, your credit score will naturally be low because you haven’t got any history of repayments. Likewise, if you’ve missed payments in the past or had financial issues, your score will be affected. The good news is you can improve your credit score whatever your starting point.
Where does my credit score come from and how can I check it?
The UK has three credit reference agencies – Experian, Equifax and TransUnion. They collect information about your financial status and transactions and use it to calculate your credit score. This will fall into one of five categories: poor, fair, good, very good and excellent.
You can check your credit score at any time without ruining by going to any of the credit reference agencies’ websites and entering the details they ask for. Checking your credit score doesn’t affect your rating. But applying for new credit or a loan that requires a credit check does – your credit score will go down each time you make an application.
Why is it better to have a higher credit score?
A high credit score shows that you’ve been a responsible borrower and have kept up with your repayments, making you a low-risk borrower. You’re more likely to be granted a new loan and you may get a lower interest rate.
If you’ve missed repayments on loans, overdrafts or other commitments, such as rent or utility bills, this will lower your credit score. It means you might not have as many options for borrowing and you’re likely to be offered higher interest rates, so you’ll end up paying back more in the long run.
What affects my credit score?
Your credit score changes over time based on how well you’ve been managing your finances, how many different debts you’ve got and how long you’ve had them.
The main factors influencing credit score are:
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Whether you're registered on the electoral roll – if you move house, remember to register under your new address
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Your credit and repayment record – how long you’ve had any loans, a mortgage, or credit cards; how much they add up to; and how reliable you’ve been with repayments
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Negative credit history – whether you’ve defaulted on any loans, had a country court judgement or filed for bankruptcy
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Your credit usage – how much of your available credit you’re currently using
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Credit applications – if you’ve applied for lots of different types of credit in a short time, this can lower your score
How can I fix my bad credit score?
Whether you’re starting from a lower score due to missed repayments or only just starting your credit journey, you can take positive steps to improve your credit score and make you a more attractive borrower.
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Pay bills on time – set up automatic payments or reminders if you need to. If you find existing repayments are becoming harder to manage, especially with the cost of living crisis, talk to your lenders as they might be able to give you a different payment schedule that fits your budget better
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Check your credit score and if something doesn’t look right, report it – checking your score doesn’t affect it, but an error that’s left unchecked could result in a lower score
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Try not to let your credit card balance creep up to the maximum – ideally, keeping your balance below 30% of your credit limit will improve your credit score, but if you need to use the full credit limit, be sure to pay it off on time each month
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Create a monthly budget – this can help you manage your incomings and outgoings better so you’re less likely to miss a repayment or bill
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Improve your credit mix – keeping on top of different types of credit can boost your score, but be sure to only borrow what you can afford to repay
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Use revolving credit to build up your credit history – a credit builder card lets you borrow small amounts of money that you need to pay off in full each month as a way to show lenders you’re a good borrower. The card usually comes with a high interest rate so it’s essential to pay it off, otherwise you can end up with a lot more to repay.
Remember that each month of paying your debts on time improves your credit score. So if your credit score isn’t as good as you’d like it to be, keep going and you’ll see an improvement.
At GWCU, we’re committed to supporting you through difficult times. Our team offer a judgement-free service and will be honest and clear about what we can offer you. If you would like to access affordable credit, apply here.
