When you're applying for a mortgage, your lender wants to make sure you're a trustworthy borrower.
They do this by checking your credit score.
Having a solid credit score will help you qualify for the best mortgage deals.
If you're renting a home, the letting agent will check your credit score to make sure you'll be reliable in paying rent.
Whether you're buying or renting, here's how to get your credit score into the best possible shape before putting in that all-important application.
What's a credit score?
Your credit score is like your financial CV. It shows how reliable you are at repaying money you've borrowed.
It's a three-digit number that's part of your credit report, which shows details of your financial behaviour during the previous six years.
It includes details on borrowing through mortgages, loans, credit cards and overdrafts. It also lists your mobile phone contracts and the utility bills you pay.
There are three main credit reference agencies in the UK that compile credit reports. And they're free to use:
How is a credit score measured?
Experian will give you a score out of 999, while Equifax will give you one out of 700. TransUnion scores you out of 710. The higher the score, the better.
The score is based on how often you apply for credit, how much you owe and whether you make payments on time.
You gain points for showing that you've borrowed money responsibly. You lose points if you've been late with payments or defaulted on a debt.
How can I find out my credit score?
Getting a copy of your credit report is easy.
You can apply online by filling out a form on any of the agencies’ websites for free.
Experian offers free access to your credit score if you open a free Experian account.
You may also be able to see your full credit report for free by signing up for an introductory offer for a subscription service.
It takes between seven and 28 working days to get a copy.
For a monthly fee, credit reference agencies offer full access to your report and tips on how to improve your credit score.
What’s the average credit score in the UK?
According to Experian, the average UK credit score is between 721 and 880. A good credit score is between 881 and 960. A score of above this level is considered excellent.
For Equifax a good credit score would be between 420 to 465. For TransUnion a score of between 604 and 627 is good.
It's important to remember that there is no number that guarantees lenders will approve your application.
Mortgage lenders look at a range of things when deciding whether or not to approve a loan. Your credit score is just one of them.
What is a bad credit score in the UK?
Experian considers a poor score to be between 561 and 720. It considers anything below 560 to be very poor.
For Equifax a score below 380 is considered bad. For TransUnion below 566 is bad.
If you have a poor credit score, you're likely to find it harder to borrow money.
How can I fix a bad credit score?
1. Get on the electoral roll
Before you do anything, get on the electoral roll. Lenders use the electoral roll – or electoral register – to confirm you live where you say you live. If your name is missing or the address is incorrect, your credit score will be negatively impacted.
It’s super-easy to get on the electoral register or just update your details using the Government’s register to vote service.
2. Get a copy of your credit report
It's free from Experian, Equifax or Transunion and applying for a copy won't affect your credit score.
3. Carry out a clean-up
Now look through your report carefully to confirm the information is correct and up-to-date.
If you notice any mistakes – such as a company claiming a missed payment when you know you paid it – you can request the agency changes it.
If it refuses, you are within your rights to add a ‘notice of correction’ to your report. This service is free-of-charge and lenders looking at your report must take it into account.
If you have changed your surname – you got married for example – check that an ‘alias’ link has been created. Otherwise, you are effectively ‘starting again’ as someone else, which can damage your score.
Other credit score hazards include duplicate address entries and being financially linked to someone else with a poor credit score. For any of these issues, call the relevant agency and ask what it can do to help.
4. Pay off any outstanding debts
If your credit report shows you already have a lot of debt, the mortgage lender will either reduce the amount you can borrow, or refuse to lend to you at all. So, try to clear as much as possible before making your mortgage application.
If this is not possible, consolidate separate debts into one single one – a low-cost personal loan for example – and shut down the credit accounts you’ve paid off.
This is worth doing because, as well as just a lot of debt, lenders are wary of multiple lines of credit, even if the individual balances are low.
5. Now, take control
Going forwards, the best way to maintain a good credit score, or rebuild a bad one, is to make sure you never miss payments on your debts and keep within your given credit limits.
If you have credit cards, set up a direct debt to clear the balance each month. If you can’t afford to do this, repaying more than just the minimum will mean lenders look more favourably on you.
And, while it might seem counterintuitive, your credit score won’t be good if you have never borrowed at all, as it means there’s no evidence you are a reliable re-payer. In this case, try applying for a credit card, but be sure to clear the balance every month.
What’s the fastest way to increase my credit score?
Your credit score measures how responsibly you've borrowed money. So weirdly, if you've never borrowed money, you'll have a low score.
As a result, taking out a credit card and making repayments in full each month can help to boost your score.
Another way to improve your score is to stay well below your credit limits. If the credit limit on your credit card is £5,000, don’t borrow more than one third of this.
As a result, asking for a higher credit limit can help to increase your credit rating.
Consolidating multiple credit cards on to a single loan can also help. But be sure to close the cards as soon as you have paid off the balance.
How can I raise my credit score in 30 days?
A quick way to boost your credit score is to link your current account to your credit report.
Experian offers this service through Experian Boost.
It then looks at your current account for examples of responsible financial behaviour. For example, if you pay your council tax on time or make regular contributions to a savings account, it can increase your credit score.
Why is my credit score so low?
There are a number of things that can give you a low credit score other than being late with repayments or defaulting on debt.
Not having ever borrowed money can lead to a low score, as lenders have no way of assessing how well you will keep up with repayments
Moving house frequently can also lead to a lower score as lenders look for stability.
Making frequent credit card applications can also negatively affect your score. This can be the case even if you close the old ones.
Finally, you may have a bad credit score if you have been a victim of identity fraud and someone has applied for credit in your name.