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How to check and improve your credit score

Your credit score will be a significant part of any finance application; whether for a car lease, a mortgage or any other loan. It is important to check your credit history regularly in order to check for and rectify any errors. Also to ensure you do not cause any further damage by applying for finance that you are sure to be declined for.

What is a credit score?

Your credit score is used by lenders to assess the risk when lending you money. It is compiled based on your lending history and your reliability with paying those funds back at the agreed times.

Your credit report is held by companies known as credit reference agencies (CRAs). There are three in the UK – Experian, Equifax and TransUnion. Each are responsible for creating and holding your credit reports and it is these that lenders will review before accepting your finance.

Confusingly, each CRA has a different maximum credit score. Experian score you out of 999, Equifax out of 700 and TransUnion offer a maximum of 710. It is important to bear this in mind when assessing your credit score as even with the same information your score will be different across these different services. Importantly, the closer you are to the maximum credit score for each CRA the less of a lending risk you are perceived to be. Therefore, the more likely you are to be accepted for credit.

Nevertheless, a perfect credit score alone will not be sufficient to secure finance on your chosen lease car deal. You will need to meet age, license and residency requirements as well as proving affordability.

How to check your credit score

You are able to check your credit score for free at anytime by visiting any of the three credit reference agencies: Experian, TransUnion or Equifax. It is their legal obligation to provide a copy of your statutory credit file free of charge. This will give you access to your full credit history and will show your current credit score.

We recommend periodically checking your credit file to ensure it is correct and up-to-date. If you do find anything wrong, let the relevant CRA know. They will then amend their records and put a 'notice of correction' on your report detailing why the information shown is incorrect.

Extras such as credit monitoring and fraud alerts are chargeable, but are worth considering if you want to be one step ahead of the game when your credit history is concerned.

Improving your credit score

Register to vote
Registering on the electoral roll at your current address is integral to linking you to your address. When you register to vote, your electoral details are registered on your credit report. This makes it easy for lenders to confirm your name and address and your credit score will increase as a result. It will also vastly improve the time taken to be approved for any finance application you make. Without it, you may be asked for additional forms of identity and proof of address.

Build your credit history
As a credit score is a way of lenders predicting your financial reliability based on past behaviour, a minimal or no credit history can still cause issues. Without this information available to be able to assess you, your credit score will be lower to reflect that uncertainty. This is therefore a problem common among younger people and those who haven't been living in the UK for very long.

It is therefore important to build up your credit history by having a bank account, having and paying off a credit card on time and managing household bills well. Showing you can borrow and pay off money is a sure fire way to improve your credit score.

Pay debt reliably
As explained above, it is a good idea to have had some debt if you are looking to improve your credit score as this informs lenders on your reliability for future lending. However, you must always pay this debt off on time in order to keep your credit rating healthy. It is older, well-manged accounts that will best improve your credit score.

Keep credit utilisation low
Credit utilisation refers to the percentage of your credit limit currently in use. For example, if your credit limit is £500 and you are already borrowing £250, your credit utilisation is 50%. If your percentage is lower this will reflect positively in your credit score. Below 25% is the utilisation percentage to aim for where possible.

This must be carefully managed against having a reasonable credit limit. Taking out lots of credit cards could reduce your credit utilisation but could also indicate that you are falsely reliant on borrowing. Each new account also increases your vulnerability to fraud and identity theft. Therefore, maintaining a sensible credit limit based on your needs and only utilising up to 25% of that total where possible is the optimum strategy to maximising your credit health.

How long will it take to improve my credit score?

Some changes you can make instantly, others are only possible gradually over time. In either case it is likely that an additional three months will be required for the updated information to reach CRAs and therefore for your credit score to be updated.

The benefits of improving your credit score

There are a number of benefits of a good credit score besides just increasing the likelihood you will get accepted for credit.

Lower interest rates - A good credit score is likely to lower interest rates on any new loans. As you are seen as a lower risk they will be keener to persuade you to borrow from them and therefore they will want to make the cost of the loan cheaper.
Higher credit limits – The better your score, the more you will be able to borrow.
More choice – your increased likelihood of getting accepted for finance will allow you access to a wider range of offers and providers.

Your credit score is one of the most important reflections on your financial health. Looking after it could not only open doors when borrowing money but could help you save on both the amount borrowed and any interest applied.

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Posted on 3rd December 2019 at 2:33 PM

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