Approaching lenders of any kind is something most of us will have to do in our lifetime. Whether it’s from a bank, a mortgage lender, a mobile phone company or even insurance providers, your credit score will be checked before being accepted. This is because lenders want to make sure they’re approving people who are low-risk borrowers and will be able to meet the repayments.
But what determines a credit score and what can make them fluctuate? The score is simply a three-digit number representing a record of your lending, credit and repayment history. These can be paying back credit cards, personal loans, mortgage and utility bills, as well as paying for goods in monthly installments (e.g. a new car, laptop, mobile phone).
In the UK, credit scores are calculated by three main credit reference agencies (CRAs) – Experian, Equifax and TransUnion. It’s worth keeping in mind each CRA has a different scoring system so where you’re ranked on one scale will differ to the next. In your report, there’s numerous details included that go beyond your repayment history.
Other elements include your past and present addresses, your electoral roll details, any court judgements or bankruptcies, previous fraud data, details of those your financially linked with, and a list of all your current accounts. Factors that could have a negative impact on your score include not being registered on the electoral roll or moving home frequently could.
If you’re looking to upsize and buy a new family home or are trying to get on the property ladder for the first time, your credit score will most definitely be checked. Unfortunately, many homebuyers are falling short due to their poor credit ratings. If you find yourself in this situation, here’s a few things you can do to improve your score:
- Keep your information up-to-date. Make sure you’re registered on the electoral roll, notify CRAs if there are any mistakes on your report and frequently check for fraudulent activity on your accounts.
- Stay in control of credit. You can do this by paying your bills on time, limiting the amount of credit applications you make, cancelling any unused cards, and borrowing less than 30% of your credit limit at any one time.
- Sign up to the Rental Exchange. If you’re looking to rent, this is a scheme set up allowing tenants of social and private housing to be recognised for paying rent on time.
Improving your credit score doesn’t have to be difficult if you know what factors are taken into consideration. With a bit of organisation and regular checks, you can become the kind of low-risk person lenders are looking for.
For more tips and information on the world of credit ratings, take a look at this guide by the Sainsbury’s Bank, Money Matters Team.