Today I’m turning the spotlight on a vital aspect of your financial health. Your credit score affects everything from loan approvals to mortgage rates.

It’s a measure of how reliably you handle credit and debt, and lenders use it to assess risk. 

Here’s everything you need to know to understand, check and improve your credit score.

Understanding credit scores

In the UK credit scores are managed by three main credit reference agencies (CRAs). These are Experian, Equifax and TransUnion.

Each agency uses its own scoring system, which can lead to some variation in scores. Generally, Experian scores range from 0 to 999, Equifax from 0 to 1,000, and TransUnion from 0 to 710. Higher scores are better and show lenders that you’re financially reliable, while lower scores indicate greater risk.

A ‘good’ credit score typically means:

• Experian: 721–880 is good, 881–960 is very good, and 961–999 is excellent.
• Equifax: 531–670 is good, 671–810 is very good, and 811–1,000 is excellent.
• TransUnion: 566–603 is good, 604–627 is very good, and 628–710 is excellent.

How to check your credit score

Each credit reference agency offers ways to check your score, often for free or with a free trial.

Experian: You can sign up for a free Experian account to get an overview of your score. Paid plans are also available if you want detailed reports.

Equifax: Equifax partners with ClearScore to offer free access to your score. Signing up on ClearScore provides monthly updates and access to your credit report.

TransUnion: Check your TransUnion score with Credit Karma (formerly Noddle), which provides free score updates and insights into your credit report.

Each CRA allows you to request a statutory credit report for free. This provides a snapshot of your financial history. You can request this once a year from each agency, helping you keep tabs on your credit profile and verify its accuracy.

Factors that affect your credit score

Credit scores are influenced by a range of factors, including:

Payment history – making timely payments on credit cards, loans, and other debts has a positive impact. Late or missed payments lower your score.

Credit utilization – using a high percentage of your available credit can be seen as risky. Aim to use less than 30% of your credit limit across all credit accounts.

Length of credit history – a longer credit history with consistent payments can boost your score, while short histories might lower it.

Credit mix – a good balance of credit types (credit cards, loans, mortgages) can positively influence your score, showing you’re capable of handling different types of credit.

Recent credit applications – frequent applications for new credit can indicate financial instability and lower your score. Applying for credit in moderation is wise.

Tips to improve your credit score

If you’d like to improve your credit score, here are some steps to consider:

1. Check your credit report for errors

Look over your credit reports for any inaccuracies, such as outdated addresses or accounts that aren’t yours. If you spot an error, contact the CRA to correct it.

2. Make payments on time

Paying bills promptly is one of the most effective ways to boost your score. Setting up direct debits can help ensure you never miss a payment.

3. Reduce credit utilization

Aim to use only a small percentage of your credit limit. For example, if you have a credit limit of £1,000, keeping your balance below £300 is ideal. This ratio, known as credit utilization, is a major factor in your score.

4. Build a long-term credit history

If possible, keep long-standing accounts open even if they’re not in active use. Older accounts can add stability to your credit history and increase your score.

5. Limit new credit applications

Every credit application creates a ‘hard enquiry’, which temporarily lowers your score. Only apply for new credit when necessary, and avoid multiple applications within a short period.

6. Consider a credit builder card

If you have a low or limited credit history, a credit builder card can help. These cards come with low limits and higher interest rates, but making timely payments on them can help build positive credit history. Just be sure to pay them off in full to avoid interest charges.

Use free credit score tools

Several services offer free tools to help you monitor and understand your credit score:

ClearScore – partners with Equifax to offer free monthly score updates, personalized credit offers, and insights into your credit report.

Credit Karma – offers access to your TransUnion report, complete with regular updates and tips for improvement.

Experian’s free service – Experian provides a basic score for free, along with options to monitor changes with their paid subscription plans.

These tools can help you understand what influences your score, track changes over time, and receive notifications for unusual activity, potentially alerting you to identity theft.

How long does it take to improve your credit score?

Building or improving a credit score is usually a gradual process. The time it takes varies depending on your starting point and the steps you take. Minor improvements, such as reducing your credit utilization or making a few timely payments, might result in noticeable changes within a few months. 

If you’re dealing with more severe issues, such as past defaults, it may take several years of good financial habits to see significant improvements.

Key takeaways

Check your credit score regularly – this helps you stay informed and spot errors that could be holding you back.

Pay on time – consistent, on-time payments are crucial.

Limit credit use – using a low percentage of available credit can boost your score.

Build a history – maintaining accounts over the long term adds stability to your profile.

By actively monitoring and managing your credit score, you can ensure you’re in the best position when it comes to applying for credit, securing a mortgage or negotiating loan rates. Taking steps now can lead to a stronger financial future for you and your loved ones.

As always, if you have any comments about this article, please do leave them below.

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Photo credits: Pexels

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The practice of maintaining a good credit score is (annoyingly) rarely taught but is more important than you might think.

If you’re unsure of how to build your credit score or what a credit score even is – don’t worry, you’re not alone! And while you might not have any credit history as a student, now is the ideal time to start building one.

You’ll soon look to buy your own house, take out a personal loan, or insurance, or get a credit card. Lenders will need to run a check to review your creditworthiness, and that’s when your credit score comes in.

Your credit report is a detailed record of your credit history and financial behaviour used to calculate your score. A high score is proof of responsible financial habits, while a poor score might mean you pose a financial risk to lenders.

To know more, check out the Money Word of the Week – ‘Credit Score’.

Tips to build and improve your credit score

Be on top of your bills

One of the fundamental steps you can observe early on is to make regular monthly payments and prevent any accumulation of debt. Adopting good credit habits by regularly paying off your rent, utility bills (like water, electricity or WiFi) and mobile SIM plans, will reflect positively on your score.

Avoid procrastinating on payments and steer clear of frequent overdrafts as they discourage lenders from trusting you with their money. 

Get on the electoral roll

Most people don’t realise that registering to vote at your current address helps boost your credit score. It provides lenders with a verification of your identity and home address.

It’s easy to forget to sign up after you move away from home and it might seem like a hassle, but with the online registration service, it’ll take about five minutes of your day. If you cannot register for any reason, such as your immigration status, promptly send a Notice of Correction to a credit reference agency to rectify your score.

Keep in mind that moving homes too much or switching contracts such as mobile plans, banks or rental agreements often might adversely affect your score.

Manage your credit

If you have proof of income and can make regular payments, get yourself a credit card (or a student or secured credit card). However, if you lack proof of income, becoming an authorised user on a parent or guardian’s credit card is an option.

Frequent use and on-time repayments of these bills will demonstrate good credit management during future checks. However, if you’re rejected for any reason, don’t keep reapplying as several hard credit checks in a short period might tamper your score.

Don’t have several cards or unused accounts open simultaneously, as consistently using fewer accounts for longer durations might make you more appealing to lenders. Plus, ensure your expenditures remain below 25% of your borrowing limit.

Avoid cosigning

Cosigning for your friends or family’s accounts might reflect badly on your score if they fail to make payments.

Similarly, if you have financial associations, such as joint mortgages or bank accounts, with anyone, their credit history will also influence your score. Future lenders might examine their records too. So, be mindful of who you financially associate yourself with!

Monitor your credit report

It’s very important to keep track of your credit accounts and check your report at regular intervals. If you come across any errors or any suspicious activity, you should raise a dispute with a Notice of Correction. Remember that having no credit history is as detrimental as having a poor one.

In the UK, your score is tracked by credit reference agencies such as Experian, Equifax, and TransUnion, and you can check your score for free once a year. Every agency has its own defined standard of a good score. For example, Experian rates a good credit score as 880 out of 999.

Use your education loan wisely

While your student loan is not reflected in your credit report, consistently repaying it after your graduation will demonstrate early adoption of good credit habits.

Your student loan is limited, so use it primarily to fund education-related expenses and avoid overspending on other matters. Taking on any additional forms of credit during your student years will affect your credit score and add debt to your record. 

It’s important to be careful from the very beginning and inculcate discipline. A good credit score will minimise debt costs for you in the future and give you access to better financial opportunities.

Photo credits: Pexels

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With skyrocketing energy bills and mortgage rates, it’s becoming more important to balance your monthly income and spendings.

Here are some of our favourite stories from around personal finance this week to help you get your head around money.

Five things you didn’t realise were affecting your credit score

Nicole Garcia Merida, writing for Money Week, highlights tips to ensure that you’re keeping your credit score in good shape by avoiding key mistakes:

1. Taking out a mortgage or joint account with somebody with bad credit: Couples often combine their finances in joint accounts and take mortgages together. However, if you are linked with somebody with a bad credit score, this can negatively impact you.
2. Avoiding credit: A good credit score comes with a mix of credit products and being able to show lenders that you can make timely repayments. If you do not take any credit at all, you cannot show them that.
3. Applying for too many credit cards: Multiple applications for credit suggest that you are in desperate need of money and have a high risk of default.
4. Receiving a county court judgement (CCJ): A CCJ is registered when somebody claims you owe them money. This can seriously affect your score and take around six years to clear.
5. Not being registered to vote: Lenders will find it harder to access and verify your details and identity if you are not on the electoral register. Being on it will record your personal data and make the process easier.

You can use credit reference agencies like Equifax, Experian, and TransUnion to check your credit score.

Consumers save nearly £3m by reducing energy use at peak hours

Consumers saved nearly £3m by reducing energy usage throughout peak times according to National Grid’s latest data on its money-saving scheme. 

Nicole Garcia Merida, writes for Money Week, to help readers better understand why National Grid is offering the scheme, and how to save energy efficiently.

The electricity system operator (ESO) is worried about the strain on electricity networks with plunging temperatures in December. Paying customers to reduce energy consumption is their easiest way to balance the system.

Running appliances outside of peak hours (between 4-7pm) could lead to credit on bills, and ultimately lower monthly energy bills for your household.

Money Week also presents several comparisons between heating modes and dryer options for you to determine which one works best for you.

What 12 months of interest rate rises did to our finances – and what to do next year

Rachel Mortimer, writing for the Telegraph, takes you through the 12 months of 2022 that changed your finances and helps you prepare for what’s coming in 2023.

• Mortgages

The Bank of England made its ninth rate rise on Thursday bringing the interest rate to 3.5%. First-time and recent buyers have been affected by these rising interest rates with lesser opportunity for them to add equity to their property.

People are spending larger proportions of their monthly incomes on mortgage payments with several unable to afford the rise.

• Savings

While most lenders passed on every bank rate rise onto their mortgage customers, there are only a few that have done so for their loyal savers.

With inflation at 10.7%, £10,000 will be worth £8930 in 12 months.

Banks like Santander, Barclays and Lloyds increased some variable rates by 2.9% but only passed on minimal rises of 0.39-0.49 percentage points to customers with £10,000 in their easy and everyday saver accounts.

• What 2023 will bring

Bank rates are expected to peak at 4.5% in the first half of 2023.

However, lenders have started dropping their prices in recent weeks. Most brokers in the market believe that the worst is over and the end of 2023 will present a more stable situation.

Photo by Microsoft 365 on Unsplash

The post Must-know money this week: credit scores, energy bills and interest rates appeared first on Mouthy Money.

Half of Brits don’t know their credit score, with 18% wanting to improve their score but don’t know how to do it, according to a new study by NerdWallet.

One in seven Britons (14%) says that their credit score is a source of stress and anxiety, with an equal number believing that their credit score is currently holding them back from making major life changes.

Benefits of a good credit score

A good credit score can be beneficial in getting better interest rates on loans, access to the best credit cards, housing, and insurance.

For example, lenders consider a potential buyer’s credit score to determine whether they are financially trustworthy.

Thus, credit scores are proof to lenders of responsibility, or good accountability, and of paying bills on time.

Brean Horne, personal finance expert at NerdWallet says: “It is worrying to see that so many people are in the dark over their credit score.

“Our credit scores can influence our chances of being approved for new credit, such as a mortgage or credit card.

“So it is really important, and very possible, to keep on top of it. It is vital that people keep track of their credit scores regularly.”

How do you check your credit score?

Each lender may have a different way of calculating your credit score, depending on what information they have access to and their lending criteria.

It’s still good to have an idea of what your score is to assess your home-buying opportunities before speaking to a lender.

Bethh Oliver, digital producer at Asda, says: “It’s only been important to check my credit score recently when buying my house – I’ve always had a relatively good credit score but to me it’s always felt a bit backwards that having a credit card boost helps you get a mortgage.

“I’d also say it’s important to check it to make sure it’s correct. My partner rarely checked his and had an error on his credit score that was significantly affecting it that didn’t actually belong to him.”

You can request a free copy of your credit report from each of three major credit reporting agencies, such as Equifax, Experian, and TransUnion.

Each credit reference agency (CRA) holds a file on you, although your rating might differ from company to company.

It’s worth getting a copy from all CRAs if you haven’t checked your credit score in a long time.

How can you improve your credit score?

If you want to take out a loan, such as a mortgage for a house, then your credit history helps your lender assess how much of a risk lending to you will be, depending on the quality of your credit score.

There are some ways you can boost your credit score, and make your house application stand out:

• Register on the electoral roll at your current address
• Make regular credit and other essential payments such as bills on time
• Keep your credit utilisation low
• Monitor your credit file and report mistakes or fraudulent activity as soon as you see them

Photo by Anete Lusina from Pexels

The post Half of Brits in the dark over their credit scores – how to check and boost your rating appeared first on Mouthy Money.