Here's why your credit score matters - and how to improve your rating

by Derin Clark Your credit score is one of the most important factors lenders look at when deciding to accept or reject your application, along with how much they are willing to lend you and at what interest rates. Whether you are looking to borrow hundreds of thousands of pounds through a mortgage or just want a £500 credit card limit, if you have a very poor credit score you’re likely to be rejected. However, if your score is excellent, you’ll not only normally be accepted but also offered the best possible interest rates. Lenders want to lend to those with high credit scores as they are considered the least risky borrowers to lend to. On the other hand, those with a poor credit score are considered riskier and, as a result, lenders will either reject the application or charge a higher interest rate to try and mitigate their risks. If you do have a poor score you may still be able to borrow as there are some lenders who specialise in lending to those with a poor credit scores. The good news is that you can easily see what your credit score is by checking it for free online and, if you have a poor credit score, there are ways of improving it. How to improve your credit score A misconception about credit scores is that only those who have not managed debt well in the past can have a poor credit score. This is not the case as someone who has never borrowed money through a finance company, such as a bank or car loan company, will likely have a poor score. The reason for this is because if you have never borrowed money there is no way of determining how responsible you are with debt and how good you are at repaying the money you owe, which results in a poor credit score. Luckily, building up a credit history is one of the easiest ways of improving credit scores. For example, taking out a credit card, even if it has a small limit will also help to increase your credit score. If you are currently saving towards a house deposit, it would be worth considering building up a good credit history at the same time as saving to help improve your chances of being accepted when applying for your first mortgage. If you have a very low credit score, there are credit cards available that are designed to help you rebuild your credit score. Known as credit repair cards, these cards usually have much lower maximum limits than other types of credit cards, but you should be aware that they often have high APR, which means they can be a very expensive way to borrow. If you have one of these cards, you should only borrow what you can afford to repay in full each month to avoid interest being added. It will come as no surprise that clearing existing debts and keeping up with debt repayments will help to improve your credit score. Along with this, making above-minimum payments on credit cards and keeping your credit card balances as low as possible will also help improve your score. If you are struggling financially and have missed payments, made late repayments or come to a repayment agreement with your lender as a result, this will likely impact your score. Although the good news is that this will not stay on your credit file forever and is normally removed after a maximum of six years. As well as this, if you have taken a mortgage, credit card or loan repayment holiday for a maximum of six months due to being financially impacted by the Covid-19 pandemic this will not be noted on your credit file. Improving your credit score isn’t just about building up a credit history and managing existing debt, however, as there are some much more simple ways of improving your score. For example, being on the electoral roll will improve your credit score, as well as closing any accounts, cards or loans that have been fully repaid. As well as thinking about your own credit history, if you have joint finances with a partner, for example a joint bank account, it means that you are financially linked. As a result, if your partner has a poor credit history it could impact your own credit score. Even if you split with your partner, including getting a divorce, you can still remain financially linked unless you financially disassociate yourself from your ex-partner. Once you’ve got a good credit score it is important to regularly check your score to make sure everything is as it should be and if anything does not look right contact the credit reference agency to find out how to get it amended or it could have a negative impact on your score. For more information about credit scores and how to improve your score visit Moneyfacts.co.uk