What Is a Credit Score?
Your credit score is a numerical representation of your creditworthiness based on your financial history. In the UK, the three main credit reference agencies are Experian, Equifax, and TransUnion, each using their own scoring system. Lenders use this information along with their own criteria to decide whether to offer you credit and at what rate. A higher score generally means access to better deals with lower interest rates, potentially saving you thousands over the life of a mortgage or loan.
Steps to Improve Your Score
The foundation of a good credit score is being on the electoral register at your current address. Paying all bills and credit commitments on time is crucial, as missed or late payments stay on your record for six years. Keep your credit utilisation low by using less than 30% of your available credit limit. Avoid making multiple credit applications in a short period, as each one leaves a mark on your file. If you have limited credit history, a credit builder card used responsibly for small purchases and paid off in full each month can help establish a positive track record.
Common Mistakes to Avoid
Closing old credit accounts can actually harm your score by reducing your overall available credit and shortening your credit history length. Applying for credit you're unlikely to get wastes a hard search on your file. Missing even one payment can significantly impact your score, so set up direct debits for at least the minimum payment on all credit accounts. Check your credit reports regularly with all three agencies and dispute any errors you find, as incorrect information could be holding your score back.