When applying for a loan, mortgage, or credit card, your credit score will typically be evaluated to determine how safe a borrower you are. During the check itself, a variety of potential factors will be reviewed. These could include:
Depending on what credit score you have, this will have a bearing on what sort of financial products you can obtain. Those with an extremely low credit score may struggle to gain access to any sort of loan – or might be required to pay higher rates.
When lenders are evaluating credit scores, they will do so against a scale. Although variations exist across agencies, Experian’s scale ranges between 0 and 999. Under those measurements, a score of 881 or more is classified as ‘good’. A credit score under 720 though is described as ‘poor’.
When determining these scores, certain aspects of a person’s history will have greater weighting than others. For example, according to Experian, the most important factor is an applicant’s payment history – making up around 35% of the total score.
Regardless, if your credit score falls within the ‘poor’ range, this is no cause for despair. The good news is these ratings can be improved with some hard work.
The first step to fixing a poor credit score is determining where the problem lies. As mentioned earlier, this rating takes a variety of factors into account so learning which one negatively affects your score is a great step in the right direction. Therefore, before doing anything, you should request to view your credit report.
Once obtained, you should review it in detail to determine that the information is accurate.
Although inaccuracies might include basic errors, such as incorrect address details, reviewing this report can also identify fraudulent activities.
If someone has made an application for a loan in your name, then this could have a detrimental effect on your credit score. Although this should be reported immediately, other mistakes ought to be highlighted to the organisation which supplied the original information.
You may also choose to add a ‘notice of correction’ as a way to highlight extenuating circumstances. For example, hospitalisation preventing you from working and, therefore, causing you to miss a mortgage payment.
Once you’ve determined how accurate your credit report is, you can begin to take steps to improve it. Fortunately, they are a variety of ways you could do this:
Sadly, there is no quick way to do this. Potentially, it might take months or even years before you improve your credit score. However, in many ways, this can be viewed as an opportunity.
Improving a credit score is a marathon, not a sprint. Much like how the best runners don’t immediately start with a challenging event, taking small steps now will likely yield more positive results in the future.
Therefore, start slow. Understand the points in your credit report and strive to improve these one at a time. Alternatively, if your debts are getting on top of you, consider professional advice or consolidating your loans into affordable monthly repayments.
Representative 22.93% APRC variable.
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.