Understanding your credit score

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If you’re planning to apply for a loan, it’s a good idea to keep a close eye on your credit score. Your credit score will affect your ability to borrow money, and the terms of your loan. A lot of things can affect your score, so it’s a good idea to take a look at your credit report before you apply for a loan. This means you can correct any mistakes and take steps to boost your score if you need to.

 

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What is a credit score?

A credit score is a number between 300–999 that indicates how reliable you are at paying back your debts. When you apply for a loan, the lending company will use this score to decide if your application gets approved, how much money they’ll lend you, and what rate of interest you’ll have to pay.

Where can I find my credit score?

The three main credit agencies in the UK are Equifax, Experian and TransUnion. These agencies hold a credit report on you, containing information on your borrowing and repayment history. Lenders use this information to produce your credit score. There’s no universal score because each agency uses its own system to work out a score.

How do I check my credit report and credit score?

The credit agencies offer free access to your full credit report and score. This important information is available through their partner websites.

Even small errors can affect your score. A top tip is to check through each of your credit reports at least once a year. If you do spot any mistakes, report them to the credit reference agency. The agency has 28 days to remove the information, or tell you why they don’t agree with you.

How to check your credit report for free

What is a good credit score?

A credit score from an agency is an indication of your creditworthiness based on the information they hold. It doesn’t guarantee that you’ll be approved for credit, or offered their lowest advertised interest rates. This is because different lenders have different criteria for choosing who they will lend to.

However, if you have a good score with one of the main credit reporting agencies, it’s likely you’ll have a good score with your lender.

So what is a good credit score?

  • TransUnion 781 out of 850
  • Equifax over 420 out of 700
  • Experian over 880 out of 999
What is a good credit score

Will a personal loan affect my credit score?

If you’re shopping around for a personal loan, ask for a ‘quotation search’ or ‘soft search credit check’. This is where a lender searches your credit record, but without leaving a ‘footprint’ on your file. This way, your credit record won’t be affected. At loans by mal we take this approach.

If you are applying for a personal loan that involves a hard credit search, then it may temporarily lower your score by a few points. However, you can remedy this by making repayments on time, which should build your credit score back up.

For information about how personal loans affect your credit score

How do I improve my credit score?

While it’s still possible to get a personal loan with a low score, it might make it more difficult and you won’t get the best interest rates. This is why it’s best to check your credit score and take steps to improve it before applying for a loan. In general, your credit history is built up slowly over time as you increase the number of on-time payments you make. You can read more about building your credit history here. However, there are some quick improvements that you can make to begin improving your credit score:

If your name’s not on there, you’ll find it much harder to get credit. Go to the GOV.UK website to find out how to register to vote online or by post.

and report any errors or fraudulent activity.

Missed and late repayments remain on your record and affect your credit applications for six years.

This is a good way to prove to lenders that you can manage your finances.

For example, if you have an overdraft facility of £2000, try to keep the amount you use at 25% (£500) or lower.

By using these cards and paying off the bills each month, you can increase your credit score.

As well as improving your chances of being approved for a personal loan, a good credit score will unlock the best interest rates on things like credit cards and mortgages. That’s why it’s well worth taking time to understand your score and taking steps to improve it if you need to borrow in the future.

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