If you want to apply for a loan and finance a bunch of purchases, you have to maintain an excellent credit score to up your chances of getting the loans you want. Maybe you are unaware. In any case, you probably want to be financially stable, which means that you need to know a thing or two about credit scores and everything that comes with them. This article will help you on that front.
What does Credit Score mean?
A credit score describes a statistical number that lenders use to evaluate a borrower’s credit history and measure their creditworthiness.
The primary use of credit scores is to evaluate the chances of the borrower repaying your loans. Your credit score generally ranges between 300 to 850. The higher your credit score, the more the likelihood of you securing a loan as the banks are unlikely to see you as a risky borrower.
When you apply for a loan, lenders tend to gauge your creditworthiness and check if you are a financial risk. In a nutshell, you need to know how to build credit if you plan to increase your chances of getting the loan you want. Lenders tend to determine your creditworthiness through the three primary Credit Rating Agencies (CRA) in the UK namely Experian, TransUnion, or Equifax.
CRAs typically use the following information to compute your credit scores: your credit usage, your payment history, missed credit payments, credit mix, foreclosures, and so forth. Each CRA determines and gives you a credit score differently.
For instance, Experian’s credit score is between 0 to 999. TransUnion’s credit score, on the other hand, is between 300 and 850, and Equifax’s credit score ranges between 0 and 700. In all cases, the higher your credit score, the better.
Banks usually give you deals on loans based on the details they get from the CRAs. If they think your credit score is excellent, you will most likely get approved for a loan at a reasonably low-interest rate. Aside from that, you may expect the bank to give you a larger loan amount.
On the flip side, if your credit score is low, you may still avail a loan, but at high-interest rates. Furthermore, your lender or bank will not give you large loan amounts as they consider you to be a financial risk. If your credit score is significantly low, you may not even be eligible for a loan. Fortunately, you have an alternative. If you have a low credit score but still want to apply for a loan, consider checking out loans for bad credit with no guarantor.
How can you improve your Credit Score in the UK?
At this point, you know the value of having an excellent credit score. Here are a few things you can to do increase your credit score:
Make your loan repayments on time
Making timely repayments is the simplest and most effective way to improve your credit score. While this may be simplistic, many borrowers surprisingly fail to do this and end up finding it challenging to clear their credit card debt. This, of course, reflects on their credit record. If you want to boost your credit scores, pay on time.
You must have an above-average credit score to get your ideal loans. However, you need to make sure you do not damage your credit score by conducting frequent checks. Going to multiple banks to look for your ideal loan and having them check your credit score will affect it.
Close the accounts that you no longer use
You probably have multiple accounts. If you have multiple accounts but do not use them, close them as soon as possible. The CRAs will not be able to retrieve information on your residual balances in your old accounts. They will consider your old accounts when they finalize your credit score. You will do a lot better without your old accounts.
Join the Electoral roll
Becoming a part of the electoral roll is another way to improve your credit score in the UK. Lenders and CRAs need to make sure the details you’ve given are correct. You can make verification easy by joining the electoral roll. If you want to increase your chances further, try to have a fixed residential location and bank account, and spend a few years at the same job.
Make use of a prepaid card from a credit builder to increase your credit
This is another way to boost your credit score in the UK. Credit builder shows borrowers how they can boost their credit scores. In a nutshell, it is an easy solution to increase your credit score in a short span.
Borrowers need to pay a fee every month, which gets automatically debited from their accounts. This fee is shown to the CRA every month for twelve months as interest payment. You can see your credit ratings go up during this time.
How much time do you need to rebuild your Credit Score?
The time required to improve your credit history will mainly depend on why and how badly your credit history was damaged. Delinquencies will mostly stay on your credit report for up to seven years. Public record incidents are likely to stick for seven years but ten years in case of bankruptcy. Most other inquiries are likely to stay on your report for up to two years.