Credit Scores Demystified – How to Access, Enhance, and Sustain Your Credit Score in the UK

Surprisingly, there is a lot of misunderstanding about credit scores, how they are compiled and how to access them in the UK. Few people know that there are multiple credit scoring agencies and even fewer realise the advice of credit report services may negatively impact your credit score – even when they claim it will help you enhance your credit profile.

The good news is this guide will dispel the myths and help you take meaningful action toward financial freedom. Once you understand the basics of credit scoring you will be able to manage your finances much more effectively and borrow money at better rates.

Let’s explore how to access, enhance, and sustain your credit score with this easy-to-follow guide.

What is a Credit Score?

A credit score is a number allocated by a credit reference agency to show your risk to lenders. The score is compiled by tracking how you manage your finances over time. For example, if you repay on time, borrow money when you need to, and have enough income to cover borrowing, your credit score will improve.

If you mismanage your personal finances your credit score will drop. If it drops enough, you can find it difficult to obtain further borrowing when needed or find loans and credit cards have extremely high interest rates.

Managing your credit score has a massive long-term impact on your life. A good credit borrower will save tens of thousands of pounds over their lifetime compared to a bad credit borrower.

Who Compiles Credit Scores?

Credit scores are compiled by four credit reference agencies in the UK. These credit reference agencies are independent limited companies and are not in any way tied to an official body such as the Financial Conduct Authority (FCA) or the government.

Although credit reference agencies supply and sell data to lenders, banks and other financial institutions, they are not in any way linked to them. Credit reference agencies are also profit driven entities which is important to note and becomes relevant further down in our guide.

The four credit reference agencies in the UK currently are:

• Experian,
• Equifax,
• TransUnion,
• Crediva.

Crediva is an outlier in the credit reference agency space and does not focus much on your financial history. Instead, they compile your credit score on your social standing. Banks and lenders tend not to be too interested in your social standing, so most do not use Crediva as a primary credit reference agency. 

They may, however, conduct a secondary credit check with Crediva to bolster information from another credit reference agency.

How to Access Your Credit Report

There are numerous services online that allow you to access your credit score. Credit reference agencies each offer their own services to access the score they hold for you, and these can be expensive. For example, Experian offers a credit record check service for a premium.

It is also not a great idea to access just one credit report from a single credit reference agency. This is because you may be paying Experian, but if the lender you apply to uses Equifax, you will have no idea how good your score is with Equifax.

Another myth is that your credit score is the same across all agencies. In fact, your credit score will be different across agencies and in some cases, it will be wildly different. This is because each agency uses different metrics to give you a score.

How to Access a Free Credit Report

There are also free credit report services like Credit Karma who uses TransUnion to provide their scores. These free credit report services are the best way of tracking your credit score without spending money and you can always register with free services across all credit score providers.

Alternatively, there are paid for services that give you your credit profile across all four agencies in a simple snapshot. These services display your data excellently, but you are paying a lot of money for the privilege.

Understanding Free Credit Report Services

Free credit report services are also profit driven companies and make money by recommending financial products. For every financial product you take through them, they earn a commission from the lender. Lenders also pay these companies to advertise specific financial products.

Annoyingly, these services are underhanded and can often present these financial products to improve your credit score.

Understanding Credit Report Advice

Whether paid for or not, credit reporting services all provide various advice to help you improve your credit score. Some advice is good, such as keeping up with monthly payments and being loyal to brands such as your phone provider. 

Any advice that requires you to borrow more money should be considered very carefully. While it is possible that extending your credit facilities can improve your credit score, more often than not, borrowing more will lead to further financial difficulties and negatively impact your score in the long run.

As mentioned, credit reporting services have a vested interest in recommending more borrowing and they will always care about their profit margins over your individual credit profile.

What Should You Do to Enhance Your Credit Score?

Enhancing your credit score requires diligence and careful money management. Clear down debt whenever possible, keep up with your monthly repayments, and only borrow money when you absolutely must borrow.

Registering to vote will also improve your credit score so make sure you are on the Electoral Register.

How Can You Maintain Improvements to Your Credit Score?

Once you have taken steps to improve your credit score, it is simply a matter of maintaining good financial practices. 

Save money wherever possible and use this saved money for any large purchases. Alternatively, you can use your savings to offset borrowing. For example, if you have £1,000 saved and a purchase coming up of a £1,000 you can take a 0% interest credit card, buy with the credit card, and use the savings to clear the debt immediately.

This will improve your credit rating and cost you nothing. Do not be tempted to juggle money or only pay minimum repayments and maintain your existing savings. In the short term this may seem fine but eventually it will come back to haunt you.

Know When to Borrow Money

Borrowing money should be limited to absolute necessity. For example, to buy a house, to renovate, or to buy a new car. 

If you have a bad credit score already, you should be even more cautious about further borrowing. If you must borrow money, the first bad credit comparison website in the UK has been launched. It allows you to compare bad credit loans and get the best loan terms and interest rates for your circumstances