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How to improve your credit score? 9 important tips for borrowers

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If, despite the increase in prices, you plan to buy a property in the UK, you certainly want to increase your credit score. From today’s article you will learn how you can do this. 

How to improve your credit score? 9 important tips for borrowers
How to improve your credit score?

What is a credit score?

Credit score it’s a creditworthiness indicator. This is a scoring of your credibility, based on past behaviors, such as paying bills or taking out loans. Banks and other financial institutions value their risk. Some borrowers, who have a good credit score may benefit from better deals (source: MoneyHelper).

Your creditworthiness is determined by 3 things:

  • Can you borrow money?
  • How much can you borrow?
  • What interest rate can you offer?

Your credit score is expressed in a three-digit indicator. Each of the 3 major credit rating agencies has its own scoring system where you can get lost.  According to HSBC:

  • Experian considers the range of 961-999 points to be an excellent result, 881-960 points to be good, and 721-880 points to be fair . Lower scores could mean higher interest rates or decline of the loan application.
  • Equifax has recently changed its scale. The highest range is 466-700 points, a good result is 420-465 points, and fair is 380-419 points. Anything that is below 380 points in practice makes it difficult to take out a mortgage.
  • TransUnion: The highest category is 628-710 points, the good one is 604-627 and  the fair one is 566-603.

Source: (What is a credit score)

How to improve your credit score?

Pay off debts

Each borrower is assigned a specific amount that he/she can borrow. If you paying off multiple loans and credit cards, your credit score will be lowered, even if you’re halfway through your debt limit. When applying for a mortgage, limit your debt to a minimum, and apply for any further loans after buying the property. In this way, you will also gain time to adjust your monthly budget to the new reality.

An additional advantage of timely repayment of debts is security. With the UK potentially facing a recession (source: Financial Times), the risk of job losses could be a possibility. Multiple loans and/or credit cards to pay back could be more difficult.

Pay on time

Credit score in the UK does not depend only on the total amount of money borrowed. Outstanding subscription fees, such as phone, internet, TV contracts also affect your credibility (source: Equifax). To protect yourself from unplanned delays, set up a direct debit or enable reminders on your phone.

Pay on time

Check your report for errors

A surprisingly large proportion of financial reports contain errors. Before you start applying for a loan, check for non-existent transactions or loan applications. Maybe the arrears that are entered in the report have long been settled? Every mistake reduces your credibility, and since you are looking for ways to raise your credit score in the UK, these “free” points will probably come in handyHere’s a description of the procedure for reporting bugs in Experian. In other agencies, the procedure is similar.

Do not set up new bank accounts

Opinions on the impact of credit cards and accounts on the credit score are divergent. According to some sources, having several accounts does not adversely affect the rating (does switching banks affect credit rating). On the Experian website, however, we can find information that creating new accounts lowers the credit score for some time (source: what affects score). It is worth sticking to one account that has existed for a sufficiently long time. The same applies to credit cards – it’s better to use one and take care of paying it back on time.

Check your credit score, but not too often

Now that you know what credit score is good, you may want to check if it’s changes often. Building creditworthiness can take many months and although checking it does not worsen it, it can cause negative emotions.  It is definitely worth checking the credit score before submitting a loan / mortgage application or for a credit card to avoid failure. If your rating is lower and you thinking about a mortgage, it is worth talking to a broker to see if there are any chances for a loan. It is worth remembering rejected applications will decrease your credit score.

How to check the credit score? It’s very simple! Just use any of these credit rating agencies within UK: Experian, TransUnion, Equifax. You can also use Checkmyfile, which gathers information from all 3 agencies at the same time. Generating and checking the report within the first 30 days is free, then £14.99 per month with the possibility of closing the account at any time*.

Do not apply for several loans at once

A lot of loan applications can negatively affect your credit score (source: Experian). This behavior gives the impression that you are carelessly handling money. If you are not sure about your credit score, it is worth to wait a while. Banks exchange information very quickly, so a visit to multiple  branches of different banks will not help and eventually can make your credit score worse.

Choose soft credit check

I mentioned that loan applications affect the credit score, but there is an exception. By using soft check, you won’t leave a mark on your credit score in case of a declined application. Other companies will not have access to it (source: HSBC). That is why always apply with the soft check option of course if possible.

Settle down

Many people do not know about this method. Lenders in the UK look more favourably at people who have registered in the electoral roll register. This is probably due to the facilitation of verification of your data. Registration can be done on the GOV.UK website. Changes in your credit score will appear within a few weeks. (source: the electoral register and your credit score)

Mortgage with partner

Your partner can help you when applying for a mortgage but in the same time can decrease your chances to get it. If you share liabilities or an account with another person, your lender will check the credit score of both of you. Your partner’s bad credit history will certainly reduce your ability, which is why in many situations it is worth separating finances in a relationship.

On the other hand, applying for a loan together may be justified because there is a possibility that the maximum mortgage amount will be much higher. Your affordability mainly depends on your earnings vs your liabilities, but if you take a loan with another person, the calculation takes into account joint income.

I hope that the above information will help in building and maintaining a good credit score. If you have any questions, please contact us. Our advisors will check your credit score, help you get the right mortgage and guide you through the whole process of buying a property.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

* We will receive a small fee from CheckMyFile for any referrals.

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