A Guide to Credit Scores

If you’re not entirely sure what your credit score is and how it works, then you should read our post!

Your credit score is one of the most important things in your adult life. It’s what dictates whether you can take out loans, credit cards and even mobile phone contracts. There’s things you do that affect your credit score, both positively and negatively, but ultimately the aim is to have good credit.

And why? Because landing yourself a good credit score is a great way to better your financial options for the future. But how exactly do you build yourself a great credit profile. If your credit is bad, things such as guarantor loans and more can help improve your credit over time – but we’ll get to that.

If you’re reading this then you probably want to find out more about credit scores, no? Of course, you do! So, read through our short guide on credit scores to find out all the essential information.

What are Credit Scores?

Your credit score is your financial past, culminated into a score. It’s not everything you’ve ever bought (don’t worry), but it does look at the timing of repayments on bills, loans and credit cards you’ve taken out too. All of these factors add up into determining your credit score. Your credit score establishes your reliability as a borrower, so if you look to take out a mortgage, store or credit card in the future, you’ll be approved based on your credit score. The best interest rate are for those with good credit, so the goal is to ultimately have a good credit score.

There are 3 main agencies in the UK, Equifax, Experian and Callcredit, and each of these agencies determine credit on different scales. Equifax score out of 700, Experian out of 999 and finally, Callcredit scores out of 5. Depending on which provider you go to, your credit score will vary. However, to know what your credit is like, you can use one of the following websites. Clear Score, MSEs Credit Club and Noddle are all free credit checking websites. They’ll produce your credit report and score, so you can find out exactly where you stand.

Good and Bad Credit

Because there are 3 main agencies, all with different credit ratings scores, it can be difficult to determine exactly what qualifies as ‘good’ credit. Below, you’ll see the different credit scores that are classed as ‘good’.

  • Equifax – 420 out of 700
  • Experian – 880 out of 999
  • Callcredit – 4 out of 5

Above are classed as good credit scores, as set by the three main agencies. These general scores are just rough guidelines for lenders, but each lender will judge you on their own scale. However, if your credit is bad it severely limits your options when looking to borrow money.

Luckily there are options available which can help improve your credit. Borrowing loans with a guarantor means that you’re not judged by your own credit score when you apply. Your guarantor supports your loan, and as you make repayments your score gradually improves.

In fact, meeting bills on time and repayments can help improve your credit score. So, you can qualify for better rates on loans, credit cards and mortgages in the future.

Why is my credit bad?

Bad credit can happen to pretty much anyone, so many factors make up your credit score, so you can’t possibly control them at all. Many young people and those who have recently taken out a loan may have poor credit. If you’ve never paid a bill with your name on it or not taken out a loan or credit card, you could have no credit score at all. And 0 is just as bad as bad credit. In the eyes of lenders, you aren’t reliable enough to borrow money even if you have no credit.

For those looking to take out a loan with bad credit, the interest rate you’ll be paying may be considerably high. Even guarantor loans, the fairest form of bad credit lending, have representative APRs between 39.9% and 69.9%. So, if you’re in desperate need of a loan, guarantor loans are some of the fairest options for those with bad credit. They’ll also help rebuild your credit profile, by meeting the monthly repayments on time. Anything that shows you meet payments on time helps your credit score – in the long run.

Tips for Improving your Credit Score

Other than the tips we’ve already mentioned, like meeting your repayments on time, there’s so much more you can do to improve your credit score. We’ve got some top tips to help you improve your credit score.

  1. Check your Profile

Sometimes, there can be errors on your profile that need checking. If you’re linked to someone, financially, that has bad credit, that can affect your score. If you’ve been the victim of fraud, make sure you check your credit profile. Fraud can drastically impact your credit rating. You can dispute any errors on your account, with proof, and they should be resolved within 28 days. So, remember to actively check your account!

  1. Clear your Debt

Outstanding debt is another factor that will ultimately be a detriment to your credit score. So, if you can, consolidate all of your debt and focus on rebuilding your credit score.

  1. Have a presence

Moving to a new house a lot and not being registered to vote are two more factors that impact your credit score. Make sure you have your name on some bills to. It’s all well and good paying for bills, but if your name isn’t on the top of the bill, then it’s doing nothing for your credit.

You should try to avoid using companies that offer to ‘rebuild your credit score’, because they’ll charge you a hell of a lot, for the information that we’ve already given to you. So, be wary. Building your credit score back up takes time, but it’s worth it so you can land yourself better financial opportunities in the future.

You’ll be able to take out mortgages and loans at reasonable rates. However, if your credit isn’t great, and you need a loan, guarantor loans have some of the fairest rates out of the bad credit lending options available. They offer more than payday loans (between £1,000 – £15,000 for some guarantor lenders) and won’t charge you nearly as much interest. They’re ideal for those with bad credit.

Remember, you credit score is a valuable asset in your life, so make sure you improve it and have a good score – you’ll get the best rates for financial products in the future.