Building a strong credit score, or credit rating, is essential for a number of reasons. These include applying for credit agreements and mortgages, but also extend to loans and applying for car finance. It's useful for a whole host of things, but primarily affects your ability to borrow money. In this guide we’ll go over what a credit score is, what having a good one means and how you can improve your credit rating.

What is a credit score?

Your credit score is generally a number that’s created from information held within your credit report. This number changes depending on the credit reporting agency that you are checking your credit score with. Your credit report, or credit file, looks at your financial and credit history, over the previous 6 years.

Any credit agreements you have taken out in that 6 year period will appear, this includes things like credit cards, mortgages, loans and car finance, plus bank accounts. It will show how you paid these off, whether you did it in full, on time, early or late. It also includes things like CCJs, IVAs, bankruptcies and other debt related issues. 

This number can change from lender to lender. It depends on the criteria that each individual uses to measure a credit score. Sometimes your credit score could even change between products offered by the same lender, as the needs for that product may be different, so keep this in mind.

Your credit score affects how a lender looks at you when deciding:

  • Whether to lend money to you in the first place
  • How much money to lend to you
  • What interest rate to set on the amount loaned

There are a number of factors that can make your credit score fluctuate, and it’s always the most recent and up-to-date credit score that’s used when an application is sent to a lender. Just because you had a good credit score once, it doesn’t necessarily mean that it will have remained strong. Your records from the last 6 years will remain on file and lenders may take this into account, so even if you currently have a good credit rating, if there are previous issues it may count against you.

An example of where your credit report could affect a credit application, like car finance, would be where your report shows a number of missed payments. A lender may look at these and question your ability to make future payments and set a slightly higher interest rate. Essentially, they’d see you as a risk.

How can I check my credit score?

It’s possible to check your credit rating online or by post. There are three main agencies that you can do this through in the UK.

These agencies are as follows:

While these companies may charge a fee for accessing the information, you can get the information for free through partner sites, such as:

Remember, you have a legal right to see a copy of your credit report free of charge.

What is a good credit score?

Each of the credit reporting agencies has their own scale and number system that they use to measure a credit score. We’ll break these down below before running through what a good credit score looks like from each of them:

What is a good credit score with Equifax?

  • Equifax use a scale of 0-700
  • A good credit score with Equifax is scoring over 420 out of a total of 700

What is a good credit rating with Experian?

  • Experian use a scale of 0-999
  • A good credit score with Experian is scoring 880 out of 999

What is a good credit score with TransUnion?

  • TransUnion use a scale of 0-5
  • A good credit score with TransUnion is 4 out of 5

Remember, just because you have a good credit score with these agencies, it doesn’t necessarily mean you will have one with the lender. The lender may use its own method, or have particular criteria they use when processing an application.

How can I raise my credit rating?

Whilst having a poor credit rating isn’t the end of the world, you can still apply for car finance with bad credit and various other credit agreements for instance, it helps to do everything you can to improve your credit score before you make applications. Below are our top tips for improving your credit score, and for maintaining your credit score once you have.

  • Step one: Register on the electoral roll to prove where you live. This one is particularly key and by far the easiest. Many places won’t accept a credit application unless you have done this. Essentially you’re confirming what your address is. You can do this wherever you are living, even if you are renting accommodation, living in shared accommodation or living with your parents. You can register to vote online and you’ll be added to the electoral roll.
  • Step two: Check your current credit file and look out for mistakes and other areas of improvement. First of all, viewing your credit file and properly understanding your report over the last few years can be a great kicking off point for spotting where you can improve. It’s also a good chance to spot any mistakes, such as a wrong address. Make changes and update it as soon as you can if you do spot a mistake, as mistakes could cost you.
  • Step three: Build your credit history. Sometimes a credit score will be low just because of a lack of activity or credit history. This is because it’s difficult for companies to assess you. This is most common in younger people, but can be an issue for many others. Some simple ways to do this include getting on the electoral roll as well as:
    • Opening a bank account
    • Getting a credit card - make sure if you do you manage it well and pay it off efficiently and regularly
    • Take out a small form of credit - this is something like a mobile phone bill or similar. Paying something off consistently can look good to lenders.
    • Manage your utility bills and rent effectively - proving that you can pay off rent and your utilities (gas, electric, water etc) regularly and on time is something lenders like to see.
  • Step four: Check your financial links, and close any that could be affecting you negatively. Many of us have joint accounts with a spouse or partner. It’s worth checking what their credit score is and then considering whether closing any financial links, linke joint accounts, would be beneficial for your own credit score.
  • Step five: Make payments reliably. As mentioned in how to build your credit history, if you can demonstrate a history of making payments in full and on time lenders will look kindly on you and your credit score will increase.
  • Step six: Check your existing debts and pay them off if possible before applying for further credit. Having a large amount of existing debt will look bad to lenders. Paying this off however, will look good. Your student loan won’t affect your credit score, as it’s not viewed as part of your credit file.
  • Step seven: Keep your credit utilisation low. Essentially, you want to show that you are using your credit responsibly, but not too much. For instance, if you have a credit limit of £4,000 and you’ve used £3,000 then you’ve got a utilisation of 75%. Most lenders like to see that you’re using your credit, but not that you’re pushing its limits. A utilisation level of 25% and below is seen as positive.
  • Step eight: Maintain your credit score by limiting your credit applications. Frequent applications for credit, particularly in a short period, can make lenders worry about your reliance on credit. Keep this in mind when looking for credit. Too many applications and your score may be affected.
  • Step nine: Consider closing unused accounts. Dormant accounts with large amounts of unused credit may have the opposite effect that you think. Rather than showing that you only have to use it when you need it, lenders may view this as you being unable to handle additional credit, so consider closing unused credit accounts.
  • Step ten: Maintain your score by avoiding default accounts, CCJs and IVAs. While you may still be accepted for some credit deals, a CCJ or an IVA can greatly affect your credit score. Car finance with a CCJ or an IVA, for instance, can be particularly hard to obtain. Try to avoid defaulting on any payments.
  • Step eleven: Be wary of fraudulent behaviour. If you make sure you keep an eye on your credit file you’ll be able to spot if anyone attempts to apply for credit in your name. This could cause big issues if it’s not spotted. If you do notice anything then alert any lenders so this can be fixed.

How long does it take to improve my credit?

Unfortunately, there’s no fast way to improve your credit score. It’s something that’s built up over time. Even the quicker things we’ve mentioned above, like getting on the electoral roll or opening a bank account, won’t necessarily have an immediate effect as it can take up to three months for this to appear on your file.

Anything negative, such as a missed payment or unpaid bill, remains on your credit file for 6 years.

Essentially you need to be using the best practice mentioned in the guide above as regularly as possible to raise your credit score and then maintain it.

How does bad credit affect me?

Essentially bad credit will work in the inverse of good credit. Having a bad credit score can make many lenders either pass you over entirely or give you poor interest rates or ask for high repayments. This doesn’t mean all is lost though, there are many lenders who specialise in credit deals for people with bad credit scores. ChooseMyCare are experts at this and we have more information for bad credit car finance if you wish to apply for car finance with us. We’ve got information for young drivers too.