It can be difficult to identify what a good credit score looks like, as the score you’re given is unique to the credit checking service you sign up to.
The thing is, there’s no such thing as a ‘universal’ credit score. Your average credit score on Experian may seem a world away from the score you’re given by Equifax. Your score will vary depending on the credit checking service you use.
You should pay attention to your credit history - this is what can affect your ability to borrow in the future.
What do lenders look at?
Everyone manages their finances differently. And when you apply for credit – whether a credit card, loan or mortgage – the lender will consider different things. This makes it difficult to pinpoint what the ‘ideal’ credit history looks like.
Lenders will judge how well you’ve managed credit in the past. If you’ve struggled to keep up with your repayments, your credit history will highlight this. You’ll be left with a negative mark that will be visible for other lenders to see and will remain on your credit history for six years or so.
If your credit history is not in the best shape, don’t worry – you can spruce it up and turn a bad credit history around.
How do I improve my credit history?
Having a less-than-perfect credit history doesn’t always mean lenders will reject your application. But it may result in you not being offered the best interest rates or credit limit (if you’ve applied for a credit card).
Let’s look at a few ways to build up a good credit history.
Keeping up with your payments shows lenders that you’re a responsible borrower. So, it’s important not to be late or miss any payments.
A default – which is a failure to repay your loan or credit card minimum payment - will cause negative marks to show up on your credit history. Remember, you can set up a Direct Debit to automatically make your loan repayment or credit card minimum payment so you don’t have to worry about missing them.
By making your monthly payments on time, you’ll see your credit history slowly improve. If you’ve defaulted on payments in the past, keeping to your agreement might repair some of the damage caused by this.
Do I cancel my old credit cards?
This is a grey area, as it will depend on what the lender you’re applying to is looking for. Each lender will look at different things. Having numerous credit cards may cause some to view you as high risk and reject your application because they think you already have enough credit available – even if you’re not using it.
Your lender wants the reassurance that you’ll repay what you owe them each month. If you already have several lines of credit open and you spend to your limit on each of these cards, you could struggle with your repayments.
Not maxing out your credit limit and only spending what you can afford shows you’re a more responsible borrower. This is especially true if you spend a small amount on your card and pay it back in full.
How well you’ve managed credit in the past is one thing lenders are guaranteed to look at. So, make sure your credit history is up to scratch.
I have never borrowed before - why do I have a ‘poor’ credit history?
Now, if you’ve never borrowed before and your credit history is on the weaker end of the scale, there are several ways you can build it up.
Make sure you’re signed up to vote – this is the easiest way to improve your credit history. This way lenders can identify you when you apply for credit.
You could also consider a ‘credit builder’ credit card.
Credit builder cards usually have a lower credit limit and higher interest rate than the most competitive credit cards. This is because they are designed for people who have never borrowed or who have struggled with credit in the past.
When used responsibly – making your repayments on time and so on – they can help increase your credit history. You should check your credit history regularly. This way you’ll have an idea of what lenders can see about you.
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