What is the credit score and how to improve it.

If you consider buying your first home, one of the first things you should look at is your credit history as your credit rating is a crucial thing to determine if you qualify for a mortgage and at which rate. Actually, this should come together, if not earlier than saving for the deposit. Building or improving a credit history can take time, even several years if you need to improve it. So, the earlier you start the better.

What is a credit score?

A credit score is a number that reflects your creditworthiness, which is used by lenders and financial institutions to assess the risk of lending money or extending credit to you. The credit score shows how well you managed your debts in the past and if lenders can trust that you will manage the debt responsibly in the future. It is an important factor in determining whether you qualify for loans, credit cards, mortgages, or other forms of credit, as well as the terms and interest rates associated with those financial products.

A credit score is not a fixed number, it is typically calculated using information from your credit report and it goes up and down over time. It includes details about your previous borrowing or credit cards, your payment history, amounts owed, length of credit history, new credit accounts, and types of credit used. It also includes information about bankruptcies and CCJs (County Court Judgment)

Why the credit score is important?

People with poor credit scores might not pass the lender’s requirements and will be refused a mortgage. The higher your credit score, the better your chances of being offered loans like car finance, credit cards, and a mortgage. It also gives you access to better terms, such as lower interest rates, higher credit limits, and more favourable repayment terms. This can save you money in the long run and make credit more affordable.

Lenders use automated impersonal credit checks, and, unfortunately, it’s often easier for them to reject some people than to investigate problems further.

Where to check the credit score and how much it costs?

There are three UK agencies that keep these records and give data to potential lenders when they’re considering applications: Experian, Equifax and TransUnion. They have their own information and different scoring systems, so don’t be surprised to see different numbers for your score from different agencies. If a mistake happens, it can be in one place but not in another.

If you are serious about applying for a mortgage, you better monitor your credit history with all agencies as different lenders have their own preferences and you never know which one they will use.

Some information is free, but some subscriptions can charge you £15 per month.

You can check your credit score for free by using Clearscore (Equifax), MoneySavingExpert Credit Club (Experian) and Credit Karma (TransUnion)

MoneySavingExpert offers a guide how to check your credit score for free

What is a good number?

The table below is just a guide, your scores could be different, but the higher number the better.

Provider	Score range	How the score is considered
Experian	0-999
	881-960	Good
	721-880	Fair or average
	561-720	Poor
	Below 560	Very poor

Equifax	0-1000
	Above 811	Excellent
	671-810	Very good
	531-670	Good
	Below 438	Poor

TransUnion	0-850
	781-850	Excellent
	721-780	Good
	601-660	Poor
	300-600	Very poor

Where the information comes from

Electoral roll information. This information is publicly available and contains addresses and the names of the people who live at them.
Court records. County court records about judgments, decrees, individual voluntary arrangements, bankruptcies and other court debt orders show if a person has a history of debt problems.
Search, address and linked data. This includes records of other lenders or companies that have searched a person’s file when he/she applied for credit, addresses which are linked to that person and other people who have a financial association with the person. The big gas and electricity companies do hard credit checks, and these go into the file too.
Account data. Banks, utility companies, mobile phone companies and other organisations share details of all account behaviour on credit or store cards, mortgages, loans, bank accounts, utility and mobile phone contracts from the past six years.

22 ways to improve your credit score: Dos and Don’ts for credit scores

There are some quick fixes, but other things will have improvements over time.

Do remember that there is always a time lag in the records, so positive things might need 2-3 months to go through the system.

Lenders use automated impersonal credit checks, and, unfortunately, it’s often easier for them to reject some people than to investigate problems further.

Check your credit score regularly and get any mistakes corrected, especially before big purchases.
Check that all your recorded addresses are correct. It’s very common to forget to change your address for all your accounts, like credit cards, mobile phone and many other places, especially if you no longer use them. Banks don’t like anything unusual and can reject you if there are discrepancies in your records.
If you haven’t done it yet, register for the electoral roll. Go to the government website www.gov.uk/register-to-vote and register. Don’t forget to change your address there when you move so that banks can see your correct address later.
Have a credit card and always pay the balance in full. Keep an eye on your bank balance before the credit card payment is due to be taken. The last thing you want is not to have enough money in the bank to pay the Direct Debit, as that will have a negative impact on your credit score.
Short credit history won’t give certainty to lenders, so it’s better to apply for a credit card as early as possible and build your credit history for several years. Lenders want to see that you can manage your debt responsibly.
Never withdraw cash from your credit card, even abroad – this is a big red flag for mortgage lenders, and they might reject you.
Avoid using your maximum credit limit. Ideally, your regular spending should be below 30% of your limit.
Don’t exceed your credit limit or go over the agreed overdraft limit.
Make sure that you pay all your bills on time and don’t miss due dates. Any missed payments will considerably reduce your credit score.
If you are not eligible to vote in the UK, add proof of residency to your credit records. You can send the proof of residency (utility bills, driving licence, etc) to all three reference agencies and ask them to verify it.
Write to credit agencies and ask them to delink you from any ex-partner if you had joint finances. This will stop their credit history from affecting you. In the same way, a flatmate with a poor credit history can also affect you because they live at the same address, so it’s a good idea to keep an eye on it.
Unfortunately, things such as CCJs (County Court Judgments) for unpaid bills are wiped from your record only after six years, so if you had one, you need to wait for several years before you apply for a mortgage. But be positive: you’ll have more time to prepare your savings, and you might manage more than 5% for the deposit, which will make your application easier.
Applications like car insurance, mobiles, credit cards, only stay on your file for a year, so it would be better to avoid multiple applications for several months before your mortgage application to avoid the rejection.
NEVER EVER take out a payday loan. Many mortgage lenders openly say that they reject people who take out payday loans. Using them shows that you can’t manage your finances, and it implies there’s a risk that you will fail to pay the monthly mortgage payments. Just stay away.
Don’t reapply immediately after a rejection, but if rejection happens, do check your credit files for errors. It sometimes happens that a rejection happens not because of an error, but because of recent searches. So don’t make too many applications in a short period of time.
Before applying, it’s always a good idea to check in advance if you comply with a lender’s criteria to avoid rejection, as that can leave an adverse mark on your record. If you don’t meet their requirements, just don’t apply to that lender. There are free eligibility tools from MoneySavingExpert, MoneySuperMarket, uSwitch, Go.Compare or Money.co.uk.
Be consistent in your application forms. Fraud-scoring firms can spot inconsistencies, such as different addresses, different mobile numbers, inconsistent job titles and salaries. Inconsistencies can cause a problem, and you might be rejected without being given a reason, which will reduce your credit score.
Paying your rent on time can boost your credit score. Tenants can register with schemes like Canopy or CreditLadder . Canopy is free and uses open banking to verify payments, reporting the information to Equifax and Experian. CreditLadder is free to report to one of the agencies, but they can charge £5-£8 for reporting to all agencies.
Avoid credit repair companies, as not all of them use completely legal procedures. If you do need help, go to a non-profit debt-counselling agency, for example, https://www.moneysavingexpert.com/loans/debt-help-plan/.
Cancel unused credit and store cards. Too many of them and too much available credit could harm you as well; keep enough to grow and maintain a good credit rating, and just cancel what you don’t need.
Paying insurance monthly instead of in full upfront (for example, for a car) can affect your credit score. Not only do some insurance companies charge up to 40% extra for this, but it also can be recorded in your credit file. It’s much better to pay insurance in full upfront.
If you’re trying to get a quote for a loan, ask the lender to do it as a ‘quotation search’ not a ‘credit search’. This means that although the inquiry will appear on your credit report, only you will be able to see it, so it won’t affect your credit score.

The good news is that even if there’s something wrong with your credit history, it will be ‘forgotten’ after some time. Just start checking it as soon as you start thinking about buying so you have all the information.

Most banks will look back at 3 years of your credit history. So even if you have something negative in your file now, after 3 years it will no longer be relevant. Just use this time to prepare a bigger deposit, increase your salary and improve your credit rating—it’s still only 3 years, not 20!