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Your credit score is often known as your financial health check. Keeping your credit score at a level that lenders find suitable to lend to you is essential.

However, when you start missing necessary payments on personal loans, credit cards and even your mortgage, your credit score is impacted negatively. This means that getting credit out in your name becomes more difficult.

Are you currently in debt? Or are you simply looking at ways to keep your credit score in a healthy position? Whatever your reason. Read on as we explain everything you need to know about your credit score and tips on how you can improve it.

What is a Credit Score?

A credit score or a credit rating is information created by lenders or companies to indicate how reliable you are at borrowing and repaying the money.

What does a Credit Score look like?

A credit score will be a three-digit number and consists of your credit record. Your credit record will include how much debt you are in, details of debts you have not paid, any default notices and how much credit you have available to you.

When a lender does a credit check on your account, they will use the information from your credit record to decide whether you are risky to lend money to.

So, if you are looking to take out credit cards, mortgages, loans, and other forms of credit, then it is vital that your credit score is presented in the most favourable light to potential lenders.

What is bad for my Credit Score?

Applying frequently for credit – If you apply for too many credit applications, this could impact your credit score. Therefore, it is essential to check the credit eligibility criteria, so you are certain you will be accepted for it. The key is to try and apply for credit you know that you will be accepted for.

Maxing out your credit limit – Don’t overdo it on your credit card or frequently use all your overdraft limits. It can make lenders cautious about lending to you as it shows that you depend on credit too much.

Borrowing over your limits – Don’t borrow more than you can afford. It might be a good idea to splash out on a luxury holiday or a new car but purchasing these items when the numbers from your budget don’t stack up could lead you to the root of debt problems.

Debt solutions such as IVAs may make your debt manageable but remember they affect your credit score heavily.

Please find out more about IVAs (Individual Voluntary Arrangements) in our guides.

Lenders take debt recovery action – It is always essential to stay in your lender’s good books and pay on time; however, things get sour when you can’t afford to pay. Lenders will then find ways to recover that money by issuing you default notices and CCJs. They could also make you file for bankruptcy. All these things will be noted on your credit file.

Having little or no credit history – You would assume that this would work in your favour as it shows you haven’t been reliant on credit; however, the key is sensible borrowing. If you can show your lender that you can borrow and pay it back, that bumps your credit score immensely.

Find out ways to improve your Credit Score if you are in debt.

How can I improve my credit score?

Build your credit history If you have no or minimal credit history, this may result in a lower credit score. This is because companies can see whether you are good at handling credit.

Register on the electoral roll. It is crucial to show potential creditors that you can prove where you live. This can be done by registering on the electoral roll.

Make payments on time We can’t stress this enough, but you must try and make your payments on time. Paying in full and on time shows potential lenders that you are responsible for handling credit and will give you a good credit score. Missed payments, default notices and CCJs all affect your credit score negatively.

Find out how Default Notices and County Court Judgements (CCJs) can affect your credit score.

Check for fraud or errors on your account. If you notice a mistake on your credit report or think a credit mark has been made in error, it is essential to rectify it. Contact the company that has made the error and look at getting them to fix it. You can ask for a Notice of Correction to be added to your account so that potential lenders can see that the error was rectified or made by mistake.

Don’t max out your credit limit. With a credit card, it is tempting to use all the limits. However, good credit etiquette’s general rule of thumb is only to utilise 50% of your credit limit. Keeping to the lower percentage shows lenders that you can manage and budget effectively.

Read our top 10 tips to stop you from getting into debt.

What doesn’t affect my Credit Score?

Credit history after six years Most of the information on your credit report is held for six years. Your credit history does matter, but generally, lenders look at more recent information. Having a negative mark on your credit history from lenders, which is more current, will affect your ability to obtain credit.

Friends and Family Unless you have a joint account with them or you are financially bound with them; lenders don’t care about them. What matters to them is your finances and how well you will cope if they lend to you.

Soft checks on your credit file This is a common myth, but if you search for a credit card or a personal loan and get a quote, this does not affect your credit score. Often called a ‘soft check’, you can see it on your credit file, but potential lenders can’t, and you can have as many ‘soft checks’ as you like.

This also applies if you are checking your credit report. You can log in to your account and check as many times as you like, and it won’t affect your credit report.

Previous owners at your address The credit history of previous owners who lived at your house does not affect your credit rating. Again, the lenders are looking for details on your financial history based on your and not your current residence.

What is a good credit score?

Generally, a good credit score should be between 670 and 799, and anything above 800 is seen as excellent.

If you have a good credit score, then this will mean that lenders will be more inclined to discuss your credit options with them. Good credit means getting approved for credit cards with better interest rates and loans at more favourable rates.

What is a bad credit score?

A credit score that’s under 669 is considered a poor credit score. Lenders see you as borrowers who may find it difficult to repay a loan and pose a lending risk.

With this score, you are less likely to be approved for credit, and very few lenders will approve a credit agreement with you unless they have some sort of security or assurance that you will pay the debt back.

How can I check my credit score?

You can check your credit score by using the following UK based credit reference agencies:

These agencies allow you to check your credit and track any changes made to your credit score.

Can I get a free Credit Check?

Some credit reference agencies charge you a paid monthly subscription fee to check your credit report, whereas some websites allow you to check your score for free.

If you are looking to do a general credit check and want some guidance regarding your credit rating, it might be a good idea to try out the free websites.

However, if you want a more detailed report and are concerned about your credit rating, you should sign up for the more reputable credit reference stated. These agencies are authorised by the financial services authority and will also provide a more detailed analysis of your credit.

Equifax offers a 30-day free trial to use their platform and then charges a paid subscription fee. Also, you can cancel at any time so you don’t get charged a fee if you don’t need it. Also, look out for 30 day free trials with the paid credit reference agencies.

If I take out a debt solution. Will this affect my credit rating?

Will a Debt Management Plan affect my credit score?

A Debt Management plan may affect your credit reference file if your creditors ask for a note to be put on your file to say you have a DMP. For example, if you apply for credit when you have started your DMP, it will show creditors that you are having trouble with debt repayments. However, if you apply for credit and you show a history of your DMP being paid on time, then this will look a lot better on your credit reference file than unpaid or infrequent debts

Your DMP may show up on your credit reference file. Some creditors may ask for a note on your file to say that you have a DMP. This would reduce your chances of getting credit if you applied for it while on your DMP, as it would show you’ve had trouble keeping up with repayments.

However, if you kept up with your DMP repayments, the DMP would look better on your credit reference file than unpaid debts or debts that you were only making periodic payments towards.

Also, it is important to note that if you miss a payment on your debt, this will be recorded on your credit file, even if you are on a DMP. This is because you are paying less than what was agreed.

Read more about Debt Management Plans.

Will an IVA (Individual Voluntary Agreement) affect my credit score?

An IVA is a formal debt solution that will appear on your credit file for six years. This will be added to your file for the entire repayment period and another year after.

After the IVA has been completed, it is essential to contact the credit reference agencies and tell them you have completed the IVA so they can mark their records as satisfied.

Read our more frequently asked questions about IVAs.

Will a Debt Consolidation Loan affect my credit score?

With all types of lending, when you first put an application or take out a Debt Consolidation Loan, it will affect your credit application. Your lender must complete a hard search on your credit record and increase your outstanding credit.

However, the effect of this will be short-term. It is only if you start missing payments from your agreement that it starts negatively impacting your credit score.

Find out more about Debt Consolidation.

Will my debts ever be removed from my credit history?

We class your credit history as a catalogue of your financial life. These will include details of everything to do with your debts and any formal debt solutions you may have entered into.

Your credit file will include details of your debts for six years, and after the six years have passed, information on your debt will be removed from your credit history to start your debt-free journey.

Is their help or advice available if I need to improve my credit score?

A credit score is one of the most important contributing factors in helping lenders determine whether they should let you borrow from them.

Although we would like to keep our records squeaky clean, sometimes this is impossible, and we find ourselves in a position where we need debt help.

If you need some help and advice, look at our debt help pages or contact one of our team for more information.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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