Credit scores - what are they and how can you get a good one?

Your credit score tells potential lenders a lot about the type of borrower you are. Whenever you look to borrow money, this score will be checked, so making sure yours is as healthy (and as accurate) as possible is key to securing the best deals.

When you borrow money in any way it’s recorded on credit reports held by the three credit reference bureaus; Equifax, Experian and TransUnion UK. The things that can be recorded on your credit report include:

• Personal loans including car loans
• Credit cards & usage
• Mortgages and repayments
• Bills and regular payments including council tax, utilities and phone bills

Lenders use the data in your report to help them decide if they want to lend you money and can also influence what APR rates you are offered. 

Your borrowing behaviour leaves a footprint on your credit records. Your credit report shows how much you are currently borrowing, who with, and crucially, your behaviour towards repaying on time.

If your credit score is good, this gives potential lenders confidence in you and makes you more likely to be offered a loan or credit agreement. If your history is inconsistent and you’ve missed payments before, this could affect your access to credit in the future.

That’s why it’s important to check your credit report to make sure that the information held is accurate. If there is a mistake on your file, you need to ask the company that filed the incorrect information to correct it and have this noted on your credit report. It’s in your interest to ensure that the information held by the credit bureaus accurately reflects your circumstances.

For instance, County Court Judgements (CCJs) for debt seriously affect your ability to get credit. If you had a CCJ which is now settled, ensure that this is updated on your credit file.

To keep your credit file in good order, here are the sort of things that make a difference:

1. Register to vote at your address It may sound strange but companies use the electoral register to confirm who you are and where you live. Contact your local Electoral Registration Office to make sure you’re on the electoral roll.

2. Make repayments on time Lenders will look at your history of repaying previous debts as an indication of your ability to pay off new ones. Always make sure you pay off at least the minimum amount due and set up direct debits to ensure you don’t miss payments

3. Only borrow what you can afford
In order to make sure you never miss a payment, if you are borrowing money or spending on a credit card, always ensure you can meet your minimum repayments comfortably at the very least

4. How many active accounts you have Lenders take into consideration the amount of credit you have available in existing accounts as well, not just what you currently owe.

5. How many credit applications you've made Lenders worry when you make lots of credit applications in a short space of time, because they see it as a sign of financial trouble. Use services that allow you to do a soft search (also known as a ‘smart search’) before you apply for a product, to see how likely you are to be accepted. If you’ve been declined for credit, stop applying because every decline has a negative impact on your file.

6. How long you’ve had an account for
Credit scoring looks at the average age of your bank accounts too, so try not to change too often

7. If you have an active joint account
This financially connects you to another person, so lenders will consider this other person's financial history when looking at any application you make. If you separate from a partner, make sure that your credit history is separated too.

If you are interested in exploring borrowing options, Salary Finance offers loans repaid from your pay. Should you be worried about your credit score, we lend to employees with a range of credit score. To find out more (including the ability to do a soft search application), click here and you can read our FAQs here. 

Check your credit score at:
Experian - www.experian.co.uk 
Equifax - www.equifax.co.uk 
TransUnion UK - www.transunion.co.uk
Clear score - https://www.clearscore.com/