Nothing is forever, and even the toughest of times can turn on a hairpin to send you on a journey back towards a state of stability and balance. Deciding to rebuild your credit score after a period of financial upheaval can feel like an impossible task, but we’re here to tell you that it isn’t. It’s not quick and it takes determination, but you know what? You can do it.
To help you on your new journey to an improved credit score, we’ve put together this handy guide to help you understand what a credit rating is and how you can improve it moving forward.
What is a credit score?
A credit score is a simplified overview of your credit history giving lenders and prospective loan providers a general idea of your previous credit repayments and reliability. A higher credit score indicates a lower risk for lenders, which can result in better interest rates and loan terms. Conversely, a lower score can limit your borrowing options and make it more difficult to secure credit. Therefore, rebuilding your credit score should be a priority if it’s taken a hit.
In the UK ,credit scores are calculated by three credit reference agencies: (CRA) Experian, Equifax, and TransUnion, who each hold secure data on individuals credit history. This is built up whenever you take out credit, such as using credit cards, paying off loans or paying for contracts (such as your phone contract or subscriptions) this score can be negatively affected if you have previously failed to make repayments or have defaulted on prior credit.
Your credit score can affect your ability to get future credit, such as taking out a mortgage, loan or applying for credit cards, and can affect the types of loans or repayment options you can be offered by future lenders.
Reviewing your credit score
A credit score is created when you first create a line of credit, this happens when you first take out a loan or sign a financial agreement such as taking out a phone contract, financing a payment or taking out loans, such as bank loans.
Once a line of credit is opened, all future credit taken out will contribute towards this overall score. If you have never taken out any form of credit or repayment option, your credit score will remain blank.
In 2021, data gathered by Experian found that almost seven out of ten Brits (69%) didn’t know their credit score.
Start by obtaining a free copy of your credit report from each of the three major credit bureaus – TransUnion, Experian, and Equifax. Carefully review your reports to ensure that all information is accurate and up to date. If you notice any errors, contact the credit bureau to dispute the inaccuracies.
How do I check my credit score?
Currently in the UK, there are three big players for checking on your score and these are Clearscore, Experian and Equifax.
Currently in the UK, there are three big players for checking on your score and these are Clearscore, Experian and Equifax.
Clearscore – Clearscore founded in July 2015, was the UK’s first provider of free credit scores and reports, they also offer consumer advice and protection services. The company earns revenue from financial institutions who pay Clearscore when new customers join them from the service similar to a referral system.
Experian – Experian remains one of the longest running credit reporting companies. Founded in 1996 and based in Ireland, the company operates across many countries and is one of the most recognised credit reporting agencies in the UK. Like Clearscore, the company also offer additional credit services, including identity protections and web data protections.
Equifax – Equifax is the lesser known of the three main credit reporting agencies, similar to Experian they offer an initial free trial period of 30 days but charge £10.95 after this trial period has ended.
How can I build my credit score?
A credit score is built up whenever credit is taken out and paid off. Credit could include using and paying off credit cards, financing options such as phone contracts and financing through store cards or financial agreement. The more payments made on time, the higher your score, and missing payments will bring your score down.
If you’ve been excluded from new credit for a while because of a bad credit score, here are some simple ways to improve your credit score:
Registering on the electoral roll:
Simply being on the electoral roll and confirming your identity and home address can help improve your credit score. It’s free and simple to do and a good place to start in improving your credit score.
Long standing active accounts:
Having a long-standing active account can suggest to a creditor that you are good at managing your accounts and managing your finances over time. This is why it’s suggested not to switch accounts when attempting to take out credit or receive a loan such as a mortgage.
Paying Bills on Time
Your payment history makes up 35% of your credit score, making it the most critical factor. Make sure to pay your bills on time whenever you can, including rent, utilities, and any outstanding debts. Setting up automatic payments and alerts can help you stay organised and ensure that you don’t miss any due dates.
Keep Credit Card Balances Low
Your ‘credit utilisation ratio’, the amount of credit you’re using compared to your total available credit, accounts for 30% of your credit score. Aim to keep your credit card balances low, ideally below 30% of your available credit. This demonstrates responsible credit usage and can help boost your credit score.
Apply for a Secured Credit Card
If you’re struggling to get approved for a traditional credit card, consider applying for a secured credit card. These cards require a cash deposit, which serves as collateral and typically determines your credit limit. By using a secured card responsibly and paying your balance in full each month, you can demonstrate your creditworthiness and improve your credit score.
Diversify Your Credit Mix
Lenders like to see a diverse mix of credit types, such as instalment loans (e.g. car loans, mortgages) and revolving credit (e.g. credit cards). Adding a variety of credit accounts can have a positive impact on your credit score, but only do so if you can manage the payments responsibly.
Avoid Applying for Multiple Credit Accounts
Each time you apply for credit, an inquiry appears on your credit report, which can temporarily lower your credit score. Avoid applying for multiple credit accounts within a short period to minimise the impact of inquiries on your credit score.
What can negatively affect my credit score?
Your creditor score is negatively affected whenever late payments, arrears or defaults are reported on your account. This can include failing to pay off an account on time or not paying off a credit card in full.
There are also certain forms of credit, such as payday loans and short-term lending options, that can negatively impact credit score when taken out.
Credit checks being run on your account can also negatively affect your overall score so be mindful before applying.
Other facts can also affect your credit score, these include:
Court records such as County Court Judgements (CCJs), Defaults and debt plans such as IVA’s and Bankruptcy agreements will negatively affect your credit score for a period of up to 6 years.
Spending habits and reliance on credit can also have an adverse effect on your credit score. If you have high credit balances and are often close to your credit limit this may suggest to lenders a heavy reliance on credit.
Do I need to pay to check my credit score?
Previously, your credit score could only be accessed through paid credit check agencies: Experian, Equifax and TransUnion, however, since 2014 Clearscore has allowed people to access free credit scores and reports through their app and website.
Other services such as Experian and Equifax offer premium services and features but generally also allow you to check your basic credit score for free. Looking at in depth reports and further features will require a premium account, which generally costs a monthly subscription ranging in price.
What is a bad credit score?
Though each credit check agency uses their own unique measuring system to calculate credit score, they all follow a similar format. Running from very poor to excellent, a typical good/excellent credit score can range from around 850 – 900 for a good score to 950-999 for excellent.
A very bad to poor credit score can range from 550-700 with a fair score being between 700 – 850. These metrics and numbers can vary significantly from credit agencies and also may not be fully accurate to your actual credit history as they are just estimates.
According to statistics provided by Experian, the average UK credit score is 759.
Is it worth paying for Experian?
Though Experian offer an initial free trial service of 30 days and allow you to view your credit score and a summary of your borrowing always without charge. Many of the services features are premium and require monthly subscriptions to access. These range in tiers and can cost from £6.99 up to £14.99.
Ultimately paying for a premium Experian account will depend on how closely you need to monitor your credit record. Since a general overview of your credit score is free, if you only require a cursory look at your credit report then these premium features aren’t required.
Can Experian boost or lower your credit score?
There are features exclusive to Experian that can affect your overall credit score, such as Experian Boost that has the potential to instantly increase your credit score using open banking to review your spending habits, with an uplift applied if you can show examples of good spending and examples of recuring payments such as subscription services and monthly payments.
These include tv subscriptions, phone contracts and financing options like Buy Now Pay Later that can all show a history of responsible lending and being able to make regular recuring payments.
This could have an instant boost to your credit score if you have examples of the above listed payments.
Be patient and persistent:
Rebuilding your credit score won’t happen overnight. It takes time, discipline, and consistent effort to make a difference. Remember that your credit score is just one aspect of your financial health, and focusing on long-term financial goals, such as saving for emergencies and retirement, will also contribute to your overall financial stability.
Rebuilding your credit score after can feel like an uphill battle, but with patience and perseverance, you can make a positive difference. By following these tips and making a conscious effort to practice responsible financial habits, you’ll be well on your way to a stronger credit score and a brighter financial future.
