If you plan on applying for loans to finance a multitude of purchases, you probably know by now that maintaining an excellent credit score can help you get the loans you want. Maybe you don’t know. If you are new to the concept of credit scores and what they mean, read ahead.
What is a Credit Score and What does it mean?
A credit score is a statistical number that you use to evaluate a borrower’s credit history.
Lenders primarily use credit scores to evaluate your likelihood of repaying your loans. Your credit score can be anywhere from 300 to 850. The higher your credit score, the better your chances of securing a loan because the banks are more likely to trust you.
When you attempt to avail a loan, lenders generally check if you are a financial risk by gauging your creditworthiness. In other words, you need to know how to build credit if you want to boost your chances of getting the loan you want. Lenders usually gauge your creditworthiness via Credit Rating Agencies (CRA) namely Experian, TransUnion, or Equifax.
CRAs generally use the following information to calculate your credit scores: your payment history, credit usage, missed credit payments, credit mix, foreclosures, etc. Different CRAs determine and assign you a credit score differently.
For example, Experian’s credit score is known to range from 0 to 999 with 0 being the minimum while TransUnion’s credit score is between 300 and 850. Equifax’s credit score, however, ranges from 0 to 700. In any case, the higher your credit score the better.
Banks tend to offer you deals on loans based on the information they receive from the CRAs mentioned. If your credit score is excellent in their view, you can expect to get approved for a loan at a relatively low-interest rate. The added advantage is that you can expect the bank to allow you to take out a larger loan amount.
However, if your credit score is inadequate, you could still get a loan, but at a much higher interest rate. Also, the banks will not allow you to take out large loan amounts because they perceive you to be a financial risk. Sometimes, you may not even be eligible for a loan. If you find yourself in dire need of a loan but have a low credit score, you can still look for loans for bad credit with no guarantor.
How do you improve your Credit Score in the UK?
Now that you’ve recognized the value of having an excellent credit score, here are a few things you can do to improve it:
Make timely loan repayments
This is one of the most effective ways to improve your credit score. As simplistic as it seems, you’d be surprised to find that many borrowers fail to do this and end up having a hard time clearing credit card debt, and this reflects on their credit record. Want to improve your credit score? Make timely loan repayments.
Do not conduct multiple credit checks
As mentioned, you need to have an above-average credit score to get the loans you deem ideal. However, the process of checking your credit score itself can affect it adversely. Frequenting multiple banks in search of the ideal loan and having them calculate your credit score can damage your credit score, which is counter-productive.
Get rid of accounts that you no longer use
If you have multiple accounts and no longer use them, get rid of them immediately. The CRAs will be unable to get information on your residual balances in your old accounts. They will consider this as they finalize your credit score. You are better off without accounts that you do not use any more.
Become a part of the Electoral roll
Joining the electoral roll is yet another way to increase your credit score in the UK. Lenders and CRAs want to know if the details you’ve submitted are correct. Doing this makes it easy for them to verify.
You increase your chances even more if you have a fixed residential location and the same job and bank account for a few years without change.
Use a prepaid card from a credit builder to build your credit
Here is another way to improve your credit score in the UK. Credit builder shows borrowers how to improve their credit score. In other words, it is a simple and straightforward solution to boost your credit score in the least time possible.
Borrowers pay a monthly fee, which gets automatically debited from their bank accounts. This fee is declared to CRAs on a monthly basis for twelve months as a payment of interest. During this period, you can see your credit ratings go up.
How Long will it take to Rebuild your Credit Score?
The time you will need to improve your credit history will primarily depend on why and how bad your credit history was affected. As you go about improving your credit score, remember the following:
- You can expect delinquencies to stay on your credit report for up to seven years.
- You can also expect public record incidents to stick to your credit report for seven years. However, it could stay for up to 10 years in case of bankruptcy.
- Most other inquiries will stay on your report for two years.
As you work on improving your credit score in the UK, remember that this process will take a substantial amount of time. You can start by determining your Fair, Isaac, and Company (FICO) Score from Experian.