You know the quote, “If you don't take good care of your credit, then your credit won't take good care of you"? Your credit score can determine your opportunities to get mortgages, credit cards, and other credit-related services. However, you need a proper credit education to improve your game and enhance your credit score. This article addresses what a good credit score is, how credit scores are calculated, how to enhance your credit score.
What Is a Credit Score?
A credit score is a figure on a numerical scale that signifies how much credit you are worthy of receiving. It is obtained through an assessment of your financial information and history. It also determines how long it will take to repay a loan, utility bills, rent, credit cards, or even a mortgage. Many financial organizations use a technical strategy called a Scoring Model to measure their clients’ scores. This model uses your credit report to effectively determine your credit score. In essence, a higher score means higher creditworthiness.
What Is a Good Credit Score?
Now that we have established what a credit score is, we should also see what defines a good credit score. Ideally, a credit score is any number between 300 and 850– and a credit score of at least 700 is considered good enough. However, three major credit bureaus operate in the UK. They are Equifax, Experia, and TransUnion. And yes, these credit bureaus have different credit score ranges. They are explained below.
Equifax
Equifax, one of the top credit rating agencies, has a credit score range of 280 to 850. According to its standard, a credit score between 300 and 579 is considered poor, and a score between 580 and 669 is considered fair. A score between 670 and 739 is considered good, and a score between 800 to 850 is considered excellent.
Experia
Experia has a credit score range of 0 and 990. Based on its scoring, if your credit score falls anywhere between 881 and 960, it is considered good enough. A fair score stays between 721 and 880.
TransUnion
TransUnion's credit ranges between 0 and 710. A credit score between 566 and 603 is considered fair, a score between 604 and 627 is considered good, and a score between 628 and 710 is considered excellent.
You should note that every crediting company has its range of good scores when assessing people for credit cards and other related financial activities. These creditors have different score requirements for their debtors because of factors like the kind of customers they want, etc.
How Are Credit Scores Calculated?
Several factors, alongside a Scoring Model, help to determine your credit score. These factors include:
How much debt you are currently owing
How many recent credit applications you have
The history of the debts you have sent to foreclosure, collection, or bankruptcy
How much of your available credit you are using
Your bill-paying history
The number of loan accounts in your name
The kinds of loan accounts opened in your name
The age of your loan accounts
How long you have had your loan accounts open
9 Ways To Enhance Your Credit Score
Follow these simple steps to raise your credit score. It is important to note that they are often effective irrespective of your unique credit situation.
1. Get Yourself On The Electoral Roll
As a citizen or resident of the UK, you might not know how much good you are doing to yourself by being on the electoral roll. You should not be deceived by credit reference agencies that tell you that your score is perfect without being on the electoral roll. One huge fact is that creditors often check your presence on the electoral roll before handing you any credit. Even if it is not a requirement for some, it could cause you a delay because creditors often use it to get your true identity and address. You can easily register on the roll by applying on Gov.uk. You don't have to wait till the election period before you register.
2. Grow Your Credit History
You might be a new resident of the UK and not know how to build your credit history. Here are some tips for building your credit history:
Get credit cards. Credit cards have the potential to develop your credit history
Obtain credit-builder products
Create joint accounts
Obtain loans with co-signers
Ask a family member with a long card history for co-authorization to their card
Receive credits for every bill you cover
3. Have a Low Credit Utilisation rate
A credit utilisation rate is how much you use from your credit limit. A person with a credit limit of £3000 who has used up to £1600 has a utilisation rate of 53%. When you have a lower rate, you tend to have a good score and be in favour of creditors. So, a safe score of 28% is fine.
4. Unlink Yourself From Someone With a Poor Credit Score
You really do not want to see your credit score get slashed because of someone's poor financial history– it can be disheartening. You should ensure that you only have joint accounts with people who have good credit scores because every reading on their own records affects you. If you have a financial link to someone with a low score, you can unlink yourself and request a disassociation notice from a credit reference agency.
5. Pay Your Debts Early and Fully
One of the most credible ways to build your credit score is to offset your payments completely and as early as possible every month. It reflects you as being responsible and reliable to your creditors. This way, you'll see your credit score go up the bar.
6. Maintain Your Old Accounts
Old accounts help you stay in favour of scoring models and eventually enhance your credit score. They reflect you as someone who can comfortably handle different credit accounts over a stretched period.
7. Don't Change Your Home Too Often
Moving homes frequently can affect your credit rating negatively. Yes, it does because it paints you as financially unstable before your creditors and reduces their chances of lending money to you.
8. Get a Credit Builder Card
You can use credit builder cards to enhance your credit score. A credit builder card has spending limits and higher interest rates. These limits help control your spending and help you offset your debts altogether each month. Such a card can help you to keep your credit score high.
9. Don't Have Too Many Credit Applications
You tend to seem less financially capable when you have too many credit applications. Every credit application you make can negatively impact your credit report. Even if you want to make as many applications, do not make them in a short space of time. Spread them out.
Conclusion
Your credit score is a significant part of your financial life. It defines your opportunities and privileges every time you apply for credit. Be intentional about enhancing your credit score.