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How to Fix a Bad Credit Score

A bad credit score can have a negative impact on many aspects of your life. You may find it hard, or even impossible, to get loans and credit cards. You’re likely to be offered higher interest rates if you do manage to find a lender who will approve your application.

Once your credit score is low, you may find it difficult to open a high street bank account or to get an overdraft on your existing account. Sadly, once you’re viewed as a high-risk applicant when it comes to getting credit, it closes many doors.

Credit Score

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What is a bad credit score?

If you’re trying to get a loan or credit card and you keep getting refused, the likelihood is you have a bad credit score. This is determined through the three credit reference agencies in the UK: Experian, TransUnion and Equifax.

If you’ve borrowed money in the past and defaulted on repayments, or you’ve made late payments on existing loans or your mortgage, this will be recorded on your record by the credit reference agencies. Your credit score is a three-digit number, calculated from the data a credit reference agency has on its files.

Usually, your credit score will come with a credit report that provides more details about your history. When you apply for any kind of credit, lenders will check your credit score and other information to decide whether they can lend you the money.

Each credit reference agency uses different methods and information to calculate your credit score. There’s no such thing as a “universal” credit score. The first step towards improving how lenders view your financial conduct is understanding your credit score.

What are the benefits of a good credit score?

Once you’ve seen your credit score and credit report, you can start trying to improve them for a better financial future. Your credit score matters a lot because it alerts lenders to how risky it might be to lend you money.

When you have a good credit score, you have a better chance of being able to take out a mortgage, get a credit card or a loan. You will also have a better chance of being approved for the top deals.

When it comes to credit cards, you may be eligible for a more competitive interest rate, a higher credit limit, a longer 0% interest deal, loyalty points or cash back. With a bad credit score, you may find you’re eligible only for cards with a high-interest rate and no perks – or you may not be approved for any if your score is very poor.

How can I improve my credit score?

There are several things you can do to improve a credit score, but it’s not something that will happen overnight. First, ensure you’re on the electoral register. This means you’re registered to vote in general and local elections. It enables lenders to check your identity and address and it can make you appear more settled if you’ve lived at the same address for some time.

Next, check for errors on your credit report, such as a mistake on your name and address, or some incorrect information passed to the CRA by a lender. This can adversely affect your chance of getting credit. If you find inaccuracies, get them corrected.

If you spot a mistake, raise a dispute to flag up the error with the credit reference agency. Sometimes, you might need to give the CRA some additional information so they can investigate. The lender in question must look into the issue and get back to the CRA. If the lender agrees they have incorrect information, your report must be amended.

How long does it take to build my credit score?

Other steps to take include making repayments on time to gradually improve your credit score, although this could take a minimum of around six months. Pay your accounts on time every month and if possible, pay more than the minimum amount to show lenders you’re reliable and responsible. If you have older, well-managed accounts, this can help improve your score.

Try to keep your credit utilisation low. This is the percentage of your credit limit that you’re actually using. For example, if you have a limit of £1,000 and you’ve used £500 of that, your credit utilisation is 50%. The lower the percentage, the more favourably lenders will view your application. Experts advise keeping your credit utilisation under 30%.

What’s an instant credit score boost?

The credit reference agency Experian offers a credit boost for people willing to connect their current account to their Experian account. This proves how well you’re managing your money, with examples being paying your council tax or Netflix bills on time or paying money into investment and savings accounts. When you apply for credit, Experian will share a summary of “boosted” data with lenders.

Taking out a logbook loan can provide the opportunity to rebuild your credit score by making repayments on time. This kind of loan is more suitable for someone with bad credit, as the loan is taken out against a vehicle. This means your credit score is less important in deciding whether you get approved for the loan or not.