Credit: Credit scores

Did you know that some people get better deals on loans than others? It can be because of their credit score. Lenders use this and other information to decide on how likely they think it is that you will pay back the loan on time. Your credit score, your income and any information held on you by fraud agencies is used by lenders to determine any products they offer you.

You can find your credit score by searching for companies called credit reference agencies. Your credit score is a number between 0 and 999. This is different to your credit report, which details in full all your credit accounts and repayment status. It is worth checking your credit report with some regularity to make sure that there are no errors, and as a way to guard against fraud. If you are worried about your score, then here are some of the tips on what to look out for and how to improve it.

The number one thing is simple – always pay your bills on time. Lenders want to know that you are reliable. Missing payments regularly is a big red flag to lenders. Unfortunately, this can lower your score for up to six years. The good news is that paying on time now will help rebuild your score over time. Secondly, make sure you are on the electoral register. Lenders use this to confirm your address. Being registered to vote at your home address tells financial services companies that you are who you say you are. Lenders also like to see that you have long-term accounts so they can see how well you manage them, as well as knowing you’ll remain a customer for a long time. Lenders like to see a credit history, i.e. that you have borrowed successfully in the past.

If you’ve never had any debt at all, some lenders are wary. Some lenders like to see that you have handled a mix of credit. For example, a credit card and a loan. This shows you can manage different types of repayment. Don’t forget that taking out a phone contract without paying upfront for the handset is a form of credit. If you’ve been applying for credit, then lenders will do what is called a hard search. This is a formal credit check. Hard searches are fine individually, but several of them in a short period can reduce your credit score.

And finally, not maxing out all of the credit available to you helps. Keeping below 30% of the amount you can borrow shows you are not relying on it. Lenders also want to know that they will profit from you. So although it’s counter-intuitive in some cases, always repaying debts

early can work against you too. Knowing your credit score and finding ways to improve it will help you if you ever need to borrow money.

As you explore borrowing options, remember that your ability to repay your debt consistently and punctually can impact your credit score. Lenders use a credit score to judge financial reliability. It’s a number that provides a quick summary of your credit history. Your credit score affects your ability to borrow money at a later date. The higher your score, the better deals you can get for financial products, such as a loan or mortgage.

Missing payments or spending beyond your credit limit can damage your credit score. Making late payments or missing payments entirely could impact your ability to take out a mortgage to buy a house in the future. So it’s important to be aware of the deadlines and amounts of debt payments to keep your credit rating strong.

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