Most of us have heard the terms credit score, credit report and credit history. But what exactly do they mean? How important are they, and what can you do if you have bad credit?
In this article we look at:
- What is your credit score?
- How can you find out your credit score?
- What is in your credit report?
- Can you get a personal loan if you have bad credit?
- How can you improve your credit score?
What is your credit score?
Your credit score is a rating based on your financial history. When you apply for credit, such as a loan, mortgage or credit card, your credit score is one of the things a lender will take into consideration when deciding whether to offer you credit. You are given this score by one of the three main Credit Reporting Agencies (CRAs) in the UK: Experian, Equifax or TransUnion.
The higher the number the better your credit score and the three CRAs have slightly different numbering systems for their credit scores so they cant easily be compared.
Your credit score is important because many lenders use it as the basis for making lending decisions. If your credit score is not high enough they may decide that you are too much of a risk to lend to.
How can you find out your credit score?
All CRAs have a statutory obligation to provide you with a copy of your credit report for free.You can access the report online or by asking for a written copy. It is important that you are aware of your current credit score so that there are no unpleasant surprises if you want to apply for any kind of credit.
You can find out your credit score for free from the following links:
Experian (https://www.experian.co.uk/consumer/statutory-report.html)
Equifax - via Clear Score (https://www.equifax.co.uk/Products/credit/statutory-report.html)
TransUnion - via Credit Karma (https://www.creditkarma.co.uk/)
If you want to find out more details about the information on which your credit score is being based, you need to access your credit report.
You can get free 30-day trials of more comprehensive credit checking services from Experian and Equifax, which include your full credit report. To do this you may need to set up a subscription with one of the three CRAs, but you are usually able to get a month’s subscription for free, which you can then cancel before the end of the month so that you do not have to pay.
What is in your credit report?
The exact format of your credit report varies between the three CRAs, but will usually contain the following information about you.
- Your name, address and date of birth
- Whether you are on the electoral register at your current address
- Any financial links that you have with other people, for example joint bank accounts or loans
- Any recent searches of your report, for example by loan companies
- Who you owe money to, and how much
- Details of any late or missed payments
- Any County Court Judgments (CCJs) against you that were not paid in full within one month
- If you have ever been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).
It is important to check all the information in your report carefully because even seemingly small errors can have an impact on your credit score. According to research by Which? Money, around half of us never check our credit report, but around 20% of credit reports do have mistakes in them.
If you see a mistake in your report you either need to let the CRA know, or get in direct contact with the company who has made the mistake and ask them to correct it.
Bear in mind that the credit report is what lenders will see when you apply for credit, so it is essential that it is correct and up to date.
Can you get a personal loan if you have bad credit?
If you have a good credit score, you will have a greater chance of being approved for new credit. You are also likely to be offered a wider choice of financial products and better deals.
However, a good credit score doesn’t completely guarantee that you’ll be approved for credit, because a lender’s decision may not be based solely on your credit score.
This also means that even if you have a poor credit score, you may still be able to get a bad credit personal loan. A fair lender, such as Fair Finance, will look at your current situation, recent credit history, and the affordability of loan repayments when deciding whether to lend to you.
There are also positive steps that you take to improve your credit score. Let’s take a look.
How can you improve your credit score?
Here are six steps that you can take to improve your credit score:
1. Check your credit report for errors and make sure that your information is correct and up to date. This includes personal information such as your address and date of birth as well as financial information. Contact the CRA if there is anything wrong. Mistakes do happen, but you could also be a victim of fraud or identity theft, for example someone applying for credit in your name.
2. Make sure that you are on the electoral roll at your current address. You can register on the Gov UK website.
3. Make sure that you are not shown on your report as having financial links to anyone if this is not the case. If you have any kind of joint financial arrangement with someone else, and they have a poor credit score, this could affect your credit score too.
4. Pay all your bills on time. This includes phone bills and household bills as well as loans and credit cards. Prompt payment can help to prove to lenders that you can manage your finances, but late payments can impact on your credit score.
5. Try to reduce your overall level of debt. If possible, only use up to 25% of your current available credit. Lenders will usually be concerned if you are close to all your current credit limits, and would be wary about you taking on further debt.
6. Start an affordable new financial arrangement that would provide positive credit building evidence to lenders. Three examples are:
- A bad credit personal loan from Fair Finance. When you borrow and repay a loan with us, this information is shared with the CRAs. Other lenders will be able to see that you are managing your loan repayments well, and your credit score will start to improve.
- A savings account with LOQBOX. You can save between £20 to £200 a month for 12 months. LOQBOX treats the account as a loan and gives feedback to the CRAs that you are making loan repayments. You can access your savings at any time, whilst continuing to build your credit score.
- A credit-builder credit card. These cards are designed for people with a poor credit score to enable you to use the card and pay off the balance each month to increase your credit score. The only thing to be careful of is that the credit limits are low and the interest rates high, so you do need to be disciplined about paying off your balance to avoid getting further into debt. Examples include Barclaycard Forward, Marbles, Aqua, Vanquis and Origin.
We hope the information above helps you understand more about your credit score and how to keep it as high as you possibly can.
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