Understanding Your Bad Credit Score – And How To Improve It
If you’ve applied for a free credit report for the first time, but it’s left you feeling confused, here’s how to understand why you have a bad credit score, how it will affect you, and more importantly, how to improve it.
How your credit score is calculated?
It’s worked out using a variety of different formulas and calculations. Many credit companies will have their own formulas that lenders will in turn use to work out your credit score. In some cases different formulas will be used for different products.
This means your credit score can vary from place to place and can even differ depending on the products you have applied for.
Aiming for the highest credit score you can improves the likelihood of being accepted for a loan or credit agreement. Credit scores are used to calculate potential risk, the higher the score the lower the risk.
The lower your score the less likely you will be approved for a loan. If your application is approved, but you are still seen as a high risk to the lender because of your low credit score, you could be subject to much higher interest rates.
How to rescue your credit score
So, if your credit score isn’t as strong as you’d like what are your options?
If you suspect your score isn’t up to scratch, the first thing to do is to check it to get a clear picture of your credit history. You must do this before even thinking about applying for credit elsewhere.
Only once this is done should you start looking into what you can do to improve your score. You may discover some of your behaviour in how you have handled your finances has had a negative impact on your credit score.
Soft credit search
Soft searches can check your credit score without leaving a footprint. It could be worthwhile using a soft search to check your score whenever you’re considering a service where a credit check is required.
Make sure all of the details on your credit report are accurate. Incorrect addresses, or errors in your financial information, for example, can have a negative impact. Also, ensure you are on the electoral roll. Your credit score may be low simply because you are not registered to vote.
Tying up loose ends
Make sure you close the account of any credit cards you are not using. This helps to limit and tidy up any credit agreements you’re involved in, which looks better to a potential lender.
When you look at your financial history you might discover you have outstanding debts, or missed payments, which you’ve forgotten about. Paying these off as soon as possible can help improve your credit rating.
Pitfalls to avoid
You should be careful when looking into the options to repair a flagging credit rating. Many companies offer a paid service, which aim to advise and instruct you how to improve your credit rating. But, with so much free advice and assistance available, such as Money Saving Expert or the Money Advice Service, this is an unnecessary expense.
Credit building cards are also available from many credit card companies, which can help you improve your poor credit history. But it is important to note these cards can have very high interest, so it’s best not to apply for one if you think you will struggle to meet any repayments. You could run the risk of making your financial situation even worse.
To learn more about your credit rating and to discover some other means to help improve your credit score by reading our article Five Ways To Improve Your Credit Rating.