What are credit scores?

In the UK, credit scores play a crucial role in financial decision-making, influencing everything from securing a loan to renting an apartment. However, many people find the concept of credit scores confusing and intimidating. This guide aims to demystify credit scores, helping you by providing clear and concise information.

What is a credit score?

A credit score is a numerical representation of your creditworthiness. It reflects your history of borrowing and repaying money, providing lenders with an indication of the risk associated with lending to you. In the UK, credit scores typically range from 0 to 710, with higher scores indicating greater creditworthiness.

Factors affecting credit scores

Several factors influence can your credit score, including:

1. Payment history: Your track record of making on-time payments for credit cards, loans, and other financial obligations.

2. Credit utilisation: The amount of credit you're using compared to your total available credit limit such as using 90% of your credit card limit.

3. Length of credit history: The length of time you've been using credit accounts.

4. Recent credit applications: Too many credit application searches in a short space of time can impact your ability to obtain credit and your credit score.

5. Other: Some other factors which can impact your credit score include being on the electoral role, having any court judgments in your name, or bankruptcies and insolvencies.  

How to improve your credit score

If your credit score is less than ideal, there are steps you can take to improve it:

1. Pay bills on time: Making timely payments is one of the most effective ways to boost your credit score.

2. Keep credit utilisation low: Aim to use no more than 30% of your available credit limit to maintain a healthy credit utilisation ratio.

3. Maintain old accounts: Keeping old credit accounts open can demonstrate a longer credit history, which may positively impact your score (FYI the types of credit accounts you hold does not impact your score!).

4. Limit credit applications: Avoid applying for multiple lines of credit within a short period, as this can lower your score.

5. Check your credit report: Regularly review your credit report for errors or inaccuracies that could be dragging down your score.

Monitoring your credit score

It's essential to keep an eye on your credit score to ensure its accuracy and track your progress over time. At Tandem, we offer free access to credit reports and scores through our interactive tool. This allows you to monitor any changes and take action if needed.  

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Understanding credit scores is essential for navigating the world of personal finance. By knowing the factors that influence your score and taking steps to improve it, you can better position yourself for financial success. Remember, maintaining a good credit score takes time and effort, but the benefits are well worth it in the long run.