Your credit score can be very important if you ever want to apply for things like loans, credit cards and even mortgages, as basically the better this score is, the better the rates are on such financial products. Equally, the worse it is the lower these rates will be and there’s a higher chance of you not being approved for them at all.
Here we take a closer look at what exactly your credit score is, how it’s calculated and how you can improve it to help increase your chances of securing the abovementioned better rates.
1What is a Credit Score?
Your ‘credit score’ is a rating you are given based on your financial circumstances. As aforementioned, this is used to help determine whether or not you should be approved for an application for a financial product and what interest rates you can get.
2How is it Calculated?
This score is worked out using a number of different factors by one of three credit agencies in the UK, namely Experian, Equifax, and TransUnion. This forms your ‘credit report’ and from this, your score is then determined.
Some of the areas these agencies look at include:
- Your full credit history including all the payments you’ve made and what these were for.
- Whether you have any debts and if you’re currently using any credit or are paying off any financial products.
- Whether you are meeting these payments successfully.
- Whether you’re registered on the electoral roll.
Whenever you apply for any financial products, it’s likely that the lender will run a credit check when deciding on approval. However, by getting lots of different checks it can, in fact, be detrimental to your credit score and cause it to fall lower.
3How can you Improve your Credit Score?
Your credit score is something that can be improved even if you’re determined to have ‘poor’, ‘bad’ or even ‘no’ credit rating.
A few approaches you might wish to take include:
- Rearranging your expenses to make sure you meet any monthly payments.
- Getting a loan from a lender who offers solutions to those with bad credit – such as Likely Loans for instance – to consolidate your debts or demonstrate that you can make monthly payments.
- Registering on the electoral roll.
- Limiting the number of applications you make for loans and financial products.
- Getting a credit card and paying this off each month.
Hopefully, with the above, you’ll now have a better idea of how your credit score is calculated and what steps you can take to improve it and at the same time improve your overall financial health.