According to Experian, nearly one half of UK adults have never checked their credit report – an incredible amount, given how much your credit score can impact certain major life decisions, including buying your first house. If you don’t know your credit score – or if you do, and it’s low – read on to find out more, as well as some key tips for improving it.
What Is a Credit Score?
A credit score, simply put, is a figure which denotes the likelihood of you being offered credit from a lender. Contrary to popular belief, your credit score isn’t a single standalone number accessed by every potential bank and lender you might request credit from. Rather, each lender has their own way of drawing up a credit rating for you – which usually involves background checks specific to your borrowing history.
Your credit score might be low for a given lender if you’ve been consistently late in paying back debts – whether credit card or overdraft. It might also be low if you have no credit history whatsoever. The score is not simply a measure of how responsible you are with borrowed money; it also exists to signal whether or not you’ll be a profitable customer to the lender in question.
Tips for Improving Your Credit Score
Since having a relatively high credit score will make you much less likely to be rejected for credit card or mortgage applications, it would be wise to do what you can to bring that score back up. If your score remains low, and you find yourself in need of a loan, the only lenders that might not reject you would charge extremely high interest on any loan they agree to lend you – plunging you further in the hole than before.
One key way to improve your credit score is to reduce the debt balances on any credit cards you have. If your credit card balance is anywhere near its credit limit, that is an indication to lenders that you borrow too much – and with little evidence to show you can repay, your credit score stays low. Keeping your balance low indicates you are able to pay off your debts, making lenders feel a little more comfortable with you.
If you don’t have a credit history at all, the single best way to improve your credit rating is to take out a credit card. Making just two or three small payments per month on it, and being sure to pay it off, is a sure-fire way to signal to lenders that you are a trustworthy customer.
How to Keep Your Credit Score Healthy
If you frequently struggle with money, making use of a pre-paid card is the perfect way to avoid overspending, keeping yourself on track with debt repayments elsewhere. Certain pre-paid cards can also improve your credit rating, as their monthly fee is treated like a loan to be repaid – meaning you can improve your credit rating over time without lifting a finger.