Do you know what your credit score is? If you answered ‘no’, you’re not alone. Almost half of Brits have never looked at their credit report, according to a survey from Experian. It might seem like a small oversight, but that single number plays a huge role in whether you’ll be accepted for credit and the level of interest you’ll pay.

When you apply for unsecured credit, such as a personal loan or credit card, your credit score will have an impact.

What is a credit score?

Let’s go back to basics to begin with: Your credit score is used to give lenders an idea of how likely you are to meet repayments if they did offer you credit. It’s the headline figure on your credit report, which gives potential lenders an in-depth look at your financial situation.

Your credit report and the lender’s own criteria will be used to make a decision about the term of credit, if any, they will offer you. So your credit score could have a significant impact on your plans.

Typically, if we ever think to check our credit score, it’s when we’re hoping to secure a credit card, take out a loan or access a mortgage. However, it’s not just conventional borrowing where a credit score is used. When you take out car insurance and choose to pay monthly, for example, the provider is effectively lending you the money upfront and will do a credit check as a result.

There are two key ways your credit score can affect applications:

1. Acceptance: First, it will have a direct impact on whether your application will be accepted or rejected. The higher your credit score, the more likely you are to secure the credit.

2. Interest: If successful, your credit score will then influence the level of interest you’ll pay. You’re far more likely to be offered favourable rates with a higher score. The difference in Annual Percentage Rates (APR) can be significant, affecting how much you’ll pay back.

Improving your credit score

Luckily, if your credit score isn’t in the shape you want it to be, there are steps you can take to improve it. While some steps will have a fairly quick impact on your score, it’s generally a slow process. Building up a positive credit score can take time and you should keep on top of your finances to maintain it too.

  • Register on the electoral roll: Simply registering on the electoral roll if you haven’t already can be a quick win for your credit score. It demonstrates stability and can be used to confirm identity, reducing fraud.
  • Dispute inaccuracies: When you check over your report, report any inaccuracies as soon as possible. Even a wrong address, making it look like you’ve moved a lot, can have a negative effect.
  • Pay bills on time: Keeping your finances in order is one of the best steps you can take to ensure your credit score steadily improves.
  • Limit the amount of credit you use: It can be tempting to max out credit cards, but this may have a negative impact. Utilising a higher percentage of credit can suggest you’re living beyond your means.
  • Close accounts you don’t use: Unless you have an excellent repayment history or are keeping an account open to reduce the percentage of available credit you’re using, closing down old, unused accounts can help.
  • Be careful when applying for credit: Having multiple applications for credit on your report can be harmful. As a result, carefully checking eligibility and the likelihood of approval is important.
  • Be cautious when opening joint accounts: If you’re financially linked with someone, for instance, if you hold joint accounts, their credit score and history can also affect your own.

Taking control of your credit score

Ready to take control of how lenders view your applications? Great, it’s pretty simple to keep track of your score and keep an eye out for inaccuracies. There are three main agencies in the UK, all of which offer a way to access your credit report for free:

If you need a detailed look at your credit report or want more frequent updates, you can sign up for subscription services or ask for a printed version by contacting the companies directly – you will usually have to pay a small fee for this service.

A word of warning: Credit score sites are increasingly matching you to sometimes pre-approved lending based on your score; knowing you can instantly access a credit card or loan can be tempting.

This article is for information purposes only and does not constitute advice or a personalised recommendation.
Late payment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Article last reviewed 25/03/2024.

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