The importance of a good credit score cannot be understated, but just how much of an impact does it have on your ability to access credit and on your finances as a whole?
It can help you qualify for better rates on loans, mortgages, credit cards, mobile phone contracts, and even bank accounts. It also shows that you’ve managed credit responsibly in the past and can be trusted to make any future repayments in full and on time.
What is a credit score?
The term ‘credit score‘ gets thrown around a lot when it comes to financial advice, but what exactly does it mean? In the UK, a credit score is a three-digit figure used to represent your creditworthiness (your ability to repay a credit agreement based on your financial history).
There are three main credit reference agencies in the UK (Experian, TransUnion, and Equifax). Each one collects information about you from public records, financial institutions, and utility companies and uses this to build a credit file or credit report for you. The information on your credit file is then used to calculate your credit score.
Because each credit reference agency collects information from different places and uses different scoring models, your credit score can differ slightly.
It will, however, usually fall under the same category (e.g. poor, fair, good, or excellent).
Depending on the credit reference agency used, your credit score can range from 0 to 999 (Experian), 0 to 710 (TransUnion), and 0 to 1000 (Equifax).
It also fluctuates in line with your financial situation, meaning it can increase or decrease over time.
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How do credit scores work?
The purpose of a credit score is to help lenders decide whether or not to give you credit. It can also affect the terms and conditions offered to you with lower credit scores usually subject to higher interest rates and lower credit limits.
For example, when you apply for a mortgage, the mortgage lender needs to know how you’ve handled credit agreements in the past and therefore how likely you are to make repayments in full and on time. They will then use this information to determine how likely you are to keep up with your mortgage payments.
Though rare, employers and landlords will sometimes access your credit score when deciding to employ you or rent a property to you.
However, the only time an employer is likely to access your credit score is when you apply for a role that requires you to handle large sums of money, such as those in the finance, law, and real estate industries.
Is a good credit score important?
Generally, the higher your credit score, the better your chances of being approved for credit. However, this isn’t a guarantee and other factors are considered.
Having a high credit score opens you up to a wider choice of credit products, better rates, and higher credit limits, which can save you money in the long run.
Alternatively, if you have a low credit score, lenders will see you as high-risk and will be less likely to keep on top of your repayments. Even on the off chance that you’re offered credit, this will likely be at a less competitive rate and with a lower credit limit.
It’s often not until you apply for credit that you realise how important a good credit score is. This is why it’s worth taking the time to check it on a regular basis and take steps to improve it wherever you can.
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How to improve credit score: 5 top tips
As previously mentioned, a good credit score is crucial to access most forms of credit at the best possible terms.
Here are our top tips for improving your credit score:
Check your credit file for errors
Most people assume that the information contained on their credit file is correct and their credit score is therefore an accurate representation of their credit history.
However, even a small mistake, such as a mistyped address, can be enough to affect your future credit eligibility and, in some cases, lead to you getting rejected for credit.
It’s recommended to check your credit file at least once or twice a year and report any errors to the relevant credit reference agency as soon as possible. They will then investigate the problem and update your credit report as necessary.
Register on the electoral roll
Registering on the electoral roll is a great way to prove that you live at your current address, which can rule out identity fraud and increase your credit score.
Make sure to update your address on the electoral roll each time you move to maintain your credit score. Even if you’re only living somewhere temporarily, any discrepancies between your electoral roll address and any other listed address can directly impact your credit score.
Manage accounts carefully
Lenders use your payment history as one of the biggest determining factors when deciding whether to offer you credit. Making payments in full and on time is therefore the best thing you can do to show lenders that you’re a reliable borrower and are worthy of credit.
The longer you continue to make payments as agreed, the longer you can maintain a good credit score. This includes paying your utility bills and rent payments on time each month.
Get a credit card
Getting a credit card to improve your credit score might not make sense, but it can help you prove to lenders that you’re capable of making repayments for an extended period and can be trusted to enter into another credit agreement.
Some credit cards are even designed to help you rebuild your credit score. They have lower credit limits to encourage you to borrow small amounts that you can afford to pay back. Once you’ve grown your credit score this way, your chances of being approved for both secured and unsecured credit cards will increase.
Leave old accounts open
As previously mentioned, your payment history makes up the largest portion of your credit score. By having several active credit accounts, you can build a long credit history and prove that you’ve stuck to multiple repayment schedules over time.
Limiting new credit applications can also show that you’re not reliant on credit, helping you build credit history.
How long does it take to improve your credit score?
Depending on your financial situation, it can take anything from a few months to a few years to improve your credit score.
It largely depends on your starting credit score, your current debt situation, and whether you have any negative markers on your credit file (e.g. court orders, debt solutions, or defaults).
Similarly, if you have no credit history whatsoever, it cant take some time to build it up from scratch. It might also be difficult to get approved for credit since you can’t show lenders that you’re capable of making repayments.
Even if you have a positive credit history, late or defaulted payments can derail your progress and damage your credit score.
Remember, missed payments stay on your credit file for six years and will potentially stop you from getting a loan, mortgage, bank account, or even a phone contract during this time.

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Conclusion
Whether you’ve been in debt or have no credit history, building a good credit score is crucial to being able to access a wider range of credit at more favourable terms.
But while we all know how important it is to have a good credit score, knowing how to achieve it can be easier said than done.
Some of the easiest ways to improve your credit score are to check your credit file for errors, register on the electoral roll, manage accounts carefully, get a credit card, and leave old accounts open.
It’s important to remember that any late or missed payments can stay on your credit report for up to six years. During this time, it’s difficult to get a lender to approve you for credit.