At a glance

  • For consumers, the cost of borrowing is increasing
  • But a good credit report can help to reduce the interest rate at which you’ll have to repay a loan or mortgage
  • It can also help to increase your chances of being accepted for a loan or mortgage, as well as mobile phone deals, insurance and the best offers from utility companies
  • So, it’s definitely worth keeping a close eye on your score

At a glance

  • For consumers, the cost of borrowing is increasing
  • But a good credit report can help to reduce the interest rate at which you’ll have to repay a loan or mortgage
  • It can also help to increase your chances of being accepted for a loan or mortgage, as well as mobile phone deals, insurance and the best offers from utility companies
  • So, it’s definitely worth keeping a close eye on your score

At a glance

  • For consumers, the cost of borrowing is increasing
  • But a good credit report can help to reduce the interest rate at which you’ll have to repay a loan or mortgage
  • It can also help to increase your chances of being accepted for a loan or mortgage, as well as mobile phone deals, insurance and the best offers from utility companies
  • So, it’s definitely worth keeping a close eye on your score

For consumers, the cost of borrowing money is increasing – which is why it’s important to keep an eye on your credit score, as this can significantly impact the rate at which you’re offered a loan.

Despite the Bank of England’s base rate being held at a record low of just 0.1% since March 2020, interest rates for both personal loans and mortgages are on the rise. For example, for a personal loan of £5,000 over three years, the average rate rose from 7.1% to 7.4% in the first half of last year,1 while the average rate for a two-year fixed mortgage is the highest it’s been since June 2016.2

Whatever the reasons for this, if you’re considering taking out any kind of a loan, having a healthy credit score can help you get the lowest rates, as well as influencing whether you’ll be accepted for the loan in the first place.

But how can you move that score in your favour?

That’s not an easy question to answer. Credit agencies – the organisations that work out your credit score and create reports to help lenders judge whether you’re a good ‘bet’ or not – are notorious for cloaking a lot of their work in secrecy. Therefore, unsurprisingly, there are a lot of myths and half-truths circulating about how they reach a verdict.

So here’s a rundown of some of the key facts worth knowing about credit scores and why it’s worth keeping an eye on yours.

There are three credit agencies in the UK

These are Experian (the biggest and most widely used), Equifax and TransUnion. These are the organisations that look into your credit history and work out how likely you are to be able to repay a loan in the future. Every lender will use at least one of them to run a credit check on you before you are accepted for a loan – and sometimes all three. They all use different scoring systems, so it’s hard to compare one against the other.

You can see your credit report at any time

You are legally entitled to do this, and it’s very easy to do online. You can either pay a subscription to each of the agencies (although they usually offer a month’s trial for free), or use a third-party service that will do it for free, such as MSE Credit Club, which allows you to check your Experian score for free (and also offers useful ways of boosting your chances of being accepted for a loan).

Just bear in mind that your credit score (the rating the agency will give you) is only a snapshot guide that is produced for you. Banks and other lenders will actually look at your credit report to make an assessment on whether to lend you money and at what rate, and they will combine this with other information such as any previous dealings you’ve had with them.

You can take several simple actions to improve your credit score

One of the most common factors that can cause credit scores to drop is your address. So make sure the agency has the correct details for you (and also check there are no other basic errors, such as your date of birth). You’d be surprised how often this can be wrong, especially if you’ve moved around a lot.

Even if you’ve been at the same address for a decade, there’s no guarantee an agency’s database will be up to date – and any gaps in their information could end up costing you more than, say, the chance to buy your dream home. They could result in you forfeiting any upfront fees paid to kickstart the mortgage application process.

Other important actions include making sure you’re on the electoral register (this shows the agency you’re more likely to be ‘stable’ and someone who’ll stick around, which lenders tend to like), and remembering to pay your credit card and utility bills – such as gas, electric and water – on time every month.

Why might your credit score go down?

If your score does go down and you’re not sure why, it might not be a cause for panic. It could simply reflect the fact that you’ve cancelled a credit card and potentially reduced the ‘average age’ of your credit, or that you’re using hardly any of the credit that’s available to you.

Conversely, it could suggest you’re using a bit more than you normally would. But if you’re confident in your ability to repay what you owe in a timely fashion, that shouldn’t be too concerning.

It’s worth noting that, if you’ve moved home recently, there’s a chance your score will drop, as you won’t have been at that address for long. There’s also an expectation that you’ll change your spending habits and be applying for credit a lot more than usual (as utility and insurance companies will be running credit checks on you). But within a few months it should start to go up again if you don’t do any of the other things that will cause it to drop (such as missing a monthly repayment on a loan).

If at any point you’re worried about why your score has dropped – for example, because of incorrect information or you think you may have been the victim of identity fraud – you should raise a dispute with or reach out to the credit agencies as quickly as possible.

Your credit report influences a lot of decisions

As well as dictating whether you’re accepted for a loan or mortgage, and at what rate that will be offered to you, it can affect a whole range of other things.

For example, if you’re applying for a credit card with a 0% balance transfer, it could influence the provider’s decision on how long the 0% period will last.

Credit checks are also used by mobile phone companies, utility providers and insurance companies, as the deals you do with them are often, in effect, loans (e.g. if you pay in monthly instalments for a phone, or annual car insurance, the company you’re dealing with is actually ‘lending’ you money that you would normally pay as a one-off sum). Therefore, a poor credit rating can also affect your ability to be accepted for these services.

If you get rejected by one lender, don’t give up

If one lender turns you down, don’t despair and assume it’s all down to a poor credit score. Being rejected by one doesn’t mean they’ll all do it. One reason is because different lenders use different credit agencies, they’ll often see different information about you.

Also, lenders are often looking for borrowers with different criteria to suit their own business priorities. One example of this is credit card companies: they don’t all want people with a ‘perfect’ history of paying off their bills in full every month (which would help to give you a high credit score). That’s because people who do this don’t make them any money, so some companies may prefer to only accept applications from people who usually pay interest on their credit card balance. (Although, as a general principle, that’s a bad idea as credit cards charge very high rates of interest!)

So, if at first you don’t succeed, wait awhile and then apply again. And keep checking that score!

For consumers, the cost of borrowing money is increasing – which is why it’s important to keep an eye on your credit score, as this can significantly impact the rate at which you’re offered a loan.

Despite the Bank of England’s base rate being held at a record low of just 0.1% since March 2020, interest rates for both personal loans and mortgages are on the rise. For example, for a personal loan of £5,000 over three years, the average rate rose from 7.1% to 7.4% in the first half of last year,1 while the average rate for a two-year fixed mortgage is the highest it’s been since June 2016.2

Whatever the reasons for this, if you’re considering taking out any kind of a loan, having a healthy credit score can help you get the lowest rates, as well as influencing whether you’ll be accepted for the loan in the first place.

But how can you move that score in your favour?

That’s not an easy question to answer. Credit agencies – the organisations that work out your credit score and create reports to help lenders judge whether you’re a good ‘bet’ or not – are notorious for cloaking a lot of their work in secrecy. Therefore, unsurprisingly, there are a lot of myths and half-truths circulating about how they reach a verdict.

So here’s a rundown of some of the key facts worth knowing about credit scores and why it’s worth keeping an eye on yours.

There are three credit agencies in the UK

These are Experian (the biggest and most widely used), Equifax and TransUnion. These are the organisations that look into your credit history and work out how likely you are to be able to repay a loan in the future. Every lender will use at least one of them to run a credit check on you before you are accepted for a loan – and sometimes all three. They all use different scoring systems, so it’s hard to compare one against the other.

You can see your credit report at any time

You are legally entitled to do this, and it’s very easy to do online. You can either pay a subscription to each of the agencies (although they usually offer a month’s trial for free), or use a third-party service that will do it for free, such as MSE Credit Club, which allows you to check your Experian score for free (and also offers useful ways of boosting your chances of being accepted for a loan).

Just bear in mind that your credit score (the rating the agency will give you) is only a snapshot guide that is produced for you. Banks and other lenders will actually look at your credit report to make an assessment on whether to lend you money and at what rate, and they will combine this with other information such as any previous dealings you’ve had with them.

You can take several simple actions to improve your credit score

One of the most common factors that can cause credit scores to drop is your address. So make sure the agency has the correct details for you (and also check there are no other basic errors, such as your date of birth). You’d be surprised how often this can be wrong, especially if you’ve moved around a lot.

Even if you’ve been at the same address for a decade, there’s no guarantee an agency’s database will be up to date – and any gaps in their information could end up costing you more than, say, the chance to buy your dream home. They could result in you forfeiting any upfront fees paid to kickstart the mortgage application process.

Other important actions include making sure you’re on the electoral register (this shows the agency you’re more likely to be ‘stable’ and someone who’ll stick around, which lenders tend to like), and remembering to pay your credit card and utility bills – such as gas, electric and water – on time every month.

Why might your credit score go down?

If your score does go down and you’re not sure why, it might not be a cause for panic. It could simply reflect the fact that you’ve cancelled a credit card and potentially reduced the ‘average age’ of your credit, or that you’re using hardly any of the credit that’s available to you.

Conversely, it could suggest you’re using a bit more than you normally would. But if you’re confident in your ability to repay what you owe in a timely fashion, that shouldn’t be too concerning.

It’s worth noting that, if you’ve moved home recently, there’s a chance your score will drop, as you won’t have been at that address for long. There’s also an expectation that you’ll change your spending habits and be applying for credit a lot more than usual (as utility and insurance companies will be running credit checks on you). But within a few months it should start to go up again if you don’t do any of the other things that will cause it to drop (such as missing a monthly repayment on a loan).

If at any point you’re worried about why your score has dropped – for example, because of incorrect information or you think you may have been the victim of identity fraud – you should raise a dispute with or reach out to the credit agencies as quickly as possible.

Your credit report influences a lot of decisions

As well as dictating whether you’re accepted for a loan or mortgage, and at what rate that will be offered to you, it can affect a whole range of other things.

For example, if you’re applying for a credit card with a 0% balance transfer, it could influence the provider’s decision on how long the 0% period will last.

Credit checks are also used by mobile phone companies, utility providers and insurance companies, as the deals you do with them are often, in effect, loans (e.g. if you pay in monthly instalments for a phone, or annual car insurance, the company you’re dealing with is actually ‘lending’ you money that you would normally pay as a one-off sum). Therefore, a poor credit rating can also affect your ability to be accepted for these services.

If you get rejected by one lender, don’t give up

If one lender turns you down, don’t despair and assume it’s all down to a poor credit score. Being rejected by one doesn’t mean they’ll all do it. One reason is because different lenders use different credit agencies, they’ll often see different information about you.

Also, lenders are often looking for borrowers with different criteria to suit their own business priorities. One example of this is credit card companies: they don’t all want people with a ‘perfect’ history of paying off their bills in full every month (which would help to give you a high credit score). That’s because people who do this don’t make them any money, so some companies may prefer to only accept applications from people who usually pay interest on their credit card balance. (Although, as a general principle, that’s a bad idea as credit cards charge very high rates of interest!)

So, if at first you don’t succeed, wait awhile and then apply again. And keep checking that score!

For consumers, the cost of borrowing money is increasing – which is why it’s important to keep an eye on your credit score, as this can significantly impact the rate at which you’re offered a loan.

Despite the Bank of England’s base rate being held at a record low of just 0.1% since March 2020, interest rates for both personal loans and mortgages are on the rise. For example, for a personal loan of £5,000 over three years, the average rate rose from 7.1% to 7.4% in the first half of last year,1 while the average rate for a two-year fixed mortgage is the highest it’s been since June 2016.2

Whatever the reasons for this, if you’re considering taking out any kind of a loan, having a healthy credit score can help you get the lowest rates, as well as influencing whether you’ll be accepted for the loan in the first place.

But how can you move that score in your favour?

That’s not an easy question to answer. Credit agencies – the organisations that work out your credit score and create reports to help lenders judge whether you’re a good ‘bet’ or not – are notorious for cloaking a lot of their work in secrecy. Therefore, unsurprisingly, there are a lot of myths and half-truths circulating about how they reach a verdict.

So here’s a rundown of some of the key facts worth knowing about credit scores and why it’s worth keeping an eye on yours.

There are three credit agencies in the UK

These are Experian (the biggest and most widely used), Equifax and TransUnion. These are the organisations that look into your credit history and work out how likely you are to be able to repay a loan in the future. Every lender will use at least one of them to run a credit check on you before you are accepted for a loan – and sometimes all three. They all use different scoring systems, so it’s hard to compare one against the other.

You can see your credit report at any time

You are legally entitled to do this, and it’s very easy to do online. You can either pay a subscription to each of the agencies (although they usually offer a month’s trial for free), or use a third-party service that will do it for free, such as MSE Credit Club, which allows you to check your Experian score for free (and also offers useful ways of boosting your chances of being accepted for a loan).

Just bear in mind that your credit score (the rating the agency will give you) is only a snapshot guide that is produced for you. Banks and other lenders will actually look at your credit report to make an assessment on whether to lend you money and at what rate, and they will combine this with other information such as any previous dealings you’ve had with them.

You can take several simple actions to improve your credit score

One of the most common factors that can cause credit scores to drop is your address. So make sure the agency has the correct details for you (and also check there are no other basic errors, such as your date of birth). You’d be surprised how often this can be wrong, especially if you’ve moved around a lot.

Even if you’ve been at the same address for a decade, there’s no guarantee an agency’s database will be up to date – and any gaps in their information could end up costing you more than, say, the chance to buy your dream home. They could result in you forfeiting any upfront fees paid to kickstart the mortgage application process.

Other important actions include making sure you’re on the electoral register (this shows the agency you’re more likely to be ‘stable’ and someone who’ll stick around, which lenders tend to like), and remembering to pay your credit card and utility bills – such as gas, electric and water – on time every month.

Why might your credit score go down?

If your score does go down and you’re not sure why, it might not be a cause for panic. It could simply reflect the fact that you’ve cancelled a credit card and potentially reduced the ‘average age’ of your credit, or that you’re using hardly any of the credit that’s available to you.

Conversely, it could suggest you’re using a bit more than you normally would. But if you’re confident in your ability to repay what you owe in a timely fashion, that shouldn’t be too concerning.

It’s worth noting that, if you’ve moved home recently, there’s a chance your score will drop, as you won’t have been at that address for long. There’s also an expectation that you’ll change your spending habits and be applying for credit a lot more than usual (as utility and insurance companies will be running credit checks on you). But within a few months it should start to go up again if you don’t do any of the other things that will cause it to drop (such as missing a monthly repayment on a loan).

If at any point you’re worried about why your score has dropped – for example, because of incorrect information or you think you may have been the victim of identity fraud – you should raise a dispute with or reach out to the credit agencies as quickly as possible.

Your credit report influences a lot of decisions

As well as dictating whether you’re accepted for a loan or mortgage, and at what rate that will be offered to you, it can affect a whole range of other things.

For example, if you’re applying for a credit card with a 0% balance transfer, it could influence the provider’s decision on how long the 0% period will last.

Credit checks are also used by mobile phone companies, utility providers and insurance companies, as the deals you do with them are often, in effect, loans (e.g. if you pay in monthly instalments for a phone, or annual car insurance, the company you’re dealing with is actually ‘lending’ you money that you would normally pay as a one-off sum). Therefore, a poor credit rating can also affect your ability to be accepted for these services.

If you get rejected by one lender, don’t give up

If one lender turns you down, don’t despair and assume it’s all down to a poor credit score. Being rejected by one doesn’t mean they’ll all do it. One reason is because different lenders use different credit agencies, they’ll often see different information about you.

Also, lenders are often looking for borrowers with different criteria to suit their own business priorities. One example of this is credit card companies: they don’t all want people with a ‘perfect’ history of paying off their bills in full every month (which would help to give you a high credit score). That’s because people who do this don’t make them any money, so some companies may prefer to only accept applications from people who usually pay interest on their credit card balance. (Although, as a general principle, that’s a bad idea as credit cards charge very high rates of interest!)

So, if at first you don’t succeed, wait awhile and then apply again. And keep checking that score!

References

1. Moneyfacts, ‘Loan rates rise’, June 2020

2. Moneyfacts, UK Mortgage Trends Treasury Report, March 2021

References

1. Moneyfacts, ‘Loan rates rise’, June 2020

2. Moneyfacts, UK Mortgage Trends Treasury Report, March 2021

References

1. Moneyfacts, ‘Loan rates rise’, June 2020

2. Moneyfacts, UK Mortgage Trends Treasury Report, March 2021

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