Although it’s just a number on a computer screen, a credit score determines how much finance companies are happy to lend you and what interest rates they’ll charge you.
In this article, the Loan Princess looks at:
• what a credit score is
• why lenders use credit scores
• 10 ways to improve your credit score
• bad credit loans with Loan Princess
What is a credit score?
A credit score is a record of how well you pay off your loans, credit cards, mortgage payments, and utility bills. It also contains information about how much you’ve got available to you in credit (overdrafts, credit cards, and loans) and how much of it you’re actually using.
Your credit score is there to give a lender an idea of how well you handle your day to day finances.
Why are credit scores important?
Without a credit report, a lender will have no idea if you make all your repayments on time or if you’ve had difficulties in the past. On your credit report, you’ll be given a score and that’s a measurement of you as a borrower on the likelihood that you’ll pay a loan back.
Lenders have to check whether loans are affordable for every person who applies for one and credit checks are one way of doing that. Most lenders want to work with borrowers who have good credit scores but there are a growing number who are happy to work with people with bad credit scores. We’ll cover those later but first, what are Loan Princess’s top 10 tips for boosting your credit score?
10 ways to improve your credit score
1. Pay down your debts
If you can pay a loan off early or completely clear your bank overdraft, this is great for building your credit score.
2. Pay each bill on time and in full
If you pay all of your bills on time and in full (including your utility bills, broadband bills, and so on), that will push up your credit score because lenders will think that you’re better at handling money. The odd missed payment won’t ruin your credit score but a lot of them in a short space of time will not help you.
3. Don’t run up large credit card balances
Lenders look at how much you can take out in debt and how much you actually have taken out in debt. If you have 5 credit cards with a credit limit of £25,000 and you’ve taken out nearly that much, a lender might be nervous that you have too much debt. However, if your credit card balances add up to £5,000 and your limit is £25,000, they won’t think you need to take out debt to meet your bills.
4. Get on the electoral roll
If you fall behind on a loan, a lender will normally want to send a letter to you asking if they can help you get back on track. Being on the electoral roll gives them peace of mind that you’re easy to contact.
5. Don’t make too many applications for credit
If you make too many applications for loans or credit cards in a short space of time, lenders will think that you’re desperate for money and be very wary about lending to you. Try to make as few applications as possible – using a broker is a good way to do this as they only make one application even if they introduce you to a dozen different finance companies.
6. Check your credit report for mistakes
Millions of UK credit reports have mistakes on them. Check yours before you apply for a loan. More suggestion on how to do that here.
7. Be careful how much you gamble
Many lenders now look at gambling information contained on both your credit report and in your bank account. Taking out credit while gambling does not look good to a lender. More on Finder.com about this new development.
8. Don’t close unused credit card accounts
Even if your balance is down to £0, pay for your gym membership on your card and pay it off in full every month. That’s much better from a lender’s point of view because it still shows you’re using credit responsibly.
9. “Disassociate” yourself from other people including your partner if necessary
Quite often, people living at the same address as you will affect your credit rating because their personal credit information accidentally gets put onto your credit file. Get in touch with each credit report company and ask for a disassociation – there’s no charge to doing this. More on how to do this here.
10. Take out credit-repair products
Certain finance companies are offering credit cards and loans designed to help people with poor credit ratings improve their credit score. MoneySavingExpert has more on this here.
Bad credit loans with Loan Princess
Loan Princess are the Financial Conduct Authority-licenced experts at helping people with bad credit access the finance they need to cover emergency bills. We can help you arrange a loan with a Financial Conduct Authority-approved lender for the amount you need within minutes – although it’s not 100%, our acceptance rate is very high because of the affordability checks we carry out and the lenders were able to match you with.
You can apply for a payday loan (where you make one repayment of your loan in full) or a short-term loan (where you pay back over a period of time between two and twelve months). Our lenders are more concerned with who you are now and your current financial situation than just judging you based only on your credit score. You can ask us to arrange a loan for you for between £50 and £2,500.
All you need to do to get started is to fill out our application form. Tell us how much you need and how long you want to pay it back. We’ll ask you a few more questions and then we’ll send off your application to the lenders on our panel we think would want to work with you.
Within seconds, we’ll have each lenders’ offer back and we’ll show you the best deal we find. You’ll see how much it costs each month and how much you’ll pay overall (including any default fees if you miss a payment).
You don’t have to accept the offer we find you. Whether you do or not, our service is free. If you do take out your loan, it will cost you exactly the same if we arrange it for you than if you’d gone directly to the lender.
To get started, please click here.