Tips on How to Improve your Credit Score in the UK
Before we discuss how to improve your credit score in the UK, we will begin by explaining what loans are and why people need them.
Why do people need loans and how do they go about it?
Most people generally go to a bank for a loan. When they do so, they ask for a specific loan amount that they require. People acquire loans from banks because banks can cater to a variety of expenses. These expenses include getting a new car, an education, home improvements, buying a new house, spending on a vacation, and so forth.
While asking for the loan, the customers will be asked to submit a few critical details. These details include the account number, driver’s license or passport, a recent bank, property details, and tax filings. These are all documents that you ought to carry when you approach the bank.
Once you submit your details to the bank, a credit check will be performed. When the credit check is complete the bank returns with your credit score, a number between 0 and 999.
Knowing what your credit score is and understanding how to improve your credit score in the UK is very crucial.
What is a Credit Score and why is it Important?
When applying for a loan in the UK, banks take a look at your creditworthiness and decide if you are worthy of the investment, i.e. they check to see if you are a default risk or not. They find out your creditworthiness from different Credit Rating Agencies (CRA), Examples of CRAs are Experian, TransUnion or Equifax. This information comes in the form of a score known as your credit score.
To create your credit scores, Credit Rating Agencies need a legitimate source of data or history. The data that CRAs use to make your credit scores include your payment history, credit usage, credit mix and information such as missed credit payments, foreclosures, and so forth.
Therefore, it is safe to say that CRAs know how to help you improve your credit score in the UK. Different companies have different ways of assigning you a credit score. For example, Experian’s credit score varies from 0 to 999 with 0 being the lowest, TransUnion’s credit score typically ranges between 300 and 850—the higher the number, the better and an Equifax score ranges from 0 to 700.
Using the information that credit rating agencies like Experian and Equifax share with them, banks offer you deals on loans. If you have what is considered a good credit score, you will get a loan at a relatively low interest. In addition to this, banks will permit you to take out a larger loan amount.
If you have a poor credit score, you will probably get a loan at a very high, sometimes unaffordable interest rate. These loans will be in smaller amounts because the bank will be worried about your high chances of being a default risk. In some extreme credit cases, the bank will not give you a loan at all.
Successfully applying a loan is more likely if you are working on how to improve your credit score in the UK.
How can I improve my credit score in the UK?
Be on time with Payments
One of the easiest and most effective ways to improve your credit score is to clear credit card debt on time. This is a strong way of conveying to your bank that you have strong creditworthiness.
Do not perform multiple credit checks
As mentioned earlier, loans in the UK require loan applicants to have a credit score that meets the loan criteria set by the bank. An important thing to consider before going to a bank for a loan is to make sure that you have a reasonable credit score. A low credit score can attract a very high interest rate or make getting loans very hard for you. Every time a bank checks your credit score, there is a slight effect on your credit score.
If you repeatedly go to different banks, it will appear as though you are desperate for a loan. This will significantly affect your credit score.
Close accounts and cards you no longer use
If you have any bank accounts that you do not use anymore, close them. If there are any balances left in your old accounts, do note that CRAs have access to this information. When needed, they will take this into consideration before making your final score.
Build your Credit through a Prepaid card from Credit Builder
Credit Builder is a service designed to help people by showing them how to improve their credit score in the UK. These cards constitute one of the easiest answers on how to improve your credit score in the UK. Customers pay a monthly fee which is automatically deducted from their bank accounts.
This fee that you pay is reported to CRAs every month for twelve months as an interest payment. During this period, your credit rating will have improved.
Get your name on the Electoral roll
An easy solution for how to improve your credit score in the UK is by getting listed on the electoral roll. This is because lenders and CRAs check to see if you and the details you provide are authentic. It also helps if you are living at the same address, have had the same job and bank account for a while without change.