Your credit score is important as it determines whether you’re accepted for different types of credit, such as a 0% credit card, a personal loan, or even a mortgage deal.
As a result, it’s always a good idea to keep track of your score and look for ways to improve it. While there are already tried and tested methods to boost your credit score, there’ll soon be another way. Here’s what you need to know.
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Why is your credit score important?
Lenders look at your credit score to determine your creditworthiness. If you have a good credit score, a lender will see you as more likely to repay any debts you owe. Because of this, you’re more likely to be accepted for the most generous deals.
Importantly, there’s no magical credit score that applies across the board. That’s because lenders use different credit rating agencies. There are four such agencies in the UK that will score you using their own scales.
The four credit rating agencies are:
- Experian
- Equifax
- TransUnion
- Crediva
If you don’t know your credit score, then it’s worth checking. In previous years, you’d typically have to shell out a small fee to do this. However, it’s now possible to do this without paying for the privilege. Read our article to see how to check your credit score for free.
How can you boost your credit score?
To calculate your score, credit rating agencies will look at how you’ve behaved with credit in the past. For example, if you’ve always stayed within your credit limit and made repayments on time, it’s likely you’ll have a decent score.
If you haven’t had much access to credit before, then it can be difficult for rating agencies to determine your creditworthiness. Thankfully, however, there are ways to boost your credit score including:
- Getting yourself on the electoral roll
- Always making credit card repayments on time
- Minimising applications for credit
- Checking your credit report for mistakes
- Staying within your credit limit
- Cancelling old cards you no longer use
For more tips, see our article that explains how to improve your credit score.
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How will it get easier to boost your credit score?
TransUnion, one of the UK’s three credit rating agencies, has announced it will begin to take Buy Now Pay Later (BNPL) repayments into account when calculating credit scores. This will happen from summer 2022.
Previously, the BNPL sector was ignored by credit rating agencies. This has meant those who’ve used BNPL and made regular, on-time repayments haven’t seen any impact on their credit score.
However, this will change from summer 2022, which may be particularly beneficial for those with a limited credit history. As TransUnion’s chief product officer, Shail Deep, explains: “These changes will be really beneficial for those with thin credit files, supporting financial inclusion and wider access to credit, as well as helping to ensure finance providers have a holistic view of an individual’s borrowing, so they can use these insights to help ensure the right outcomes for consumers.”
Of course, there is another side of the coin to consider here. While the change may help BNPL users who make timely repayments, users who struggle to pay on time could see the opposite impact on their credit scores. Citizens Advice suggests that as many as one in three shoppers using BNPL have missed payments.
Are you looking to learn more about BNPL? The BNPL sector has grown substantially in recent years, but it does have its fair share of critics. To learn about the drawbacks, see our article that explains the dangers of BNPL and how to avoid them.
