The truth about ‘poor credit score’ and 3 ways to improve yours

Your credit score is a crucial part of your financial life. It impacts your ability to access many financial services that millions of people in the UK rely on every day. A good credit score can help you save money and take advantage of financial opportunities, so it’s essential to understand exactly what it is.

‘Poor credit score’ is one of the most misleading terms in financial services. These three little words have such a huge impact on your ability to access vital financial services. It sounds like there is one all-powerful organisation that determines your credit score – but it’s not true.

When a lender wants to know if they should approve an application, they will turn to a Credit Reference Agency (CRA) to help them decide. The biggest and most well-known include Experian, Equifax, and TransUnion. Lenders might consult one or more of these companies when evaluating your application.

To give yourself the best chance of being approved by the main CRAs, there are some important steps you should take.

1 Check CRA records are accurate - Many factors can influence your credit score and each CRA will calculate them differently. That means one CRA may award you a score that results in a successful application, while another would not.

So, it’s vital that you make sure your data is accurate with all the main CRAs.

CRAs are legally obliged to share the information they hold on file about you. That means you can verify that all the main agencies have accurate and up to date information about you and your financial situation.

Errors in details such as your previous addresses, incorrect financial associations or credit relationships should be immediately reported to the relevant CRA. That way any possible negative impact on your credit score can be eliminated.

2 Avoid hard credit checks - When you apply for financial services, lenders can perform either hard or soft checks to see whether you’re able to repay what you borrow.

Hard checks can impact your credit score and report. This is a deep dive into your credit report that other lenders can see for a year or more. A high number of hard searches, especially in a short period of time, is likely to result in your credit score being negatively impacted.

Soft credit checks are invisible to other lenders and have zero impact on your credit rating. Lenders can get sufficient information from soft checks to determine whether your application is likely to be accepted, how much you can borrow and the interest rate you could be charged.

3 Ask for feedback - You will know by now that CRAs have an important role to play in your ability to access financial services but don’t forget it’s the lenders who make the final decisions.

Don’t approach a CRA to ask why you have been declined financial services as they just provide data to the lender. If you want to understand more about why your application may have been declined, try asking the lender. They will have taken the CRA data into account, but they will have also reviewed your application and their own records.

Finding financial services that can help

Making sure your CRA details are up to date is a good idea, but there are financial products on the market that claim to actively help build your credit score. Approach these with caution and evaluate them carefully. Ideally, find those that reference more than one CRA to give your application the best chance of success. But most importantly, only use those that do soft credit checks as these are likely to be the most in tune with your goal of improving your credit score.