Your credit score is the yardstick that lenders use to determine your creditworthiness and to ascertain your financial behavior. So, having a bad credit score can jeopardize your financial future and deprive you of many benefits. You would be denied credit cards, loans, and other perks that are offered to those who have a good credit score. Therefore, if you have a low or bad credit score then it is imperative that you fix it. If you are now wondering how to fix a bad credit score and what you can do to improve your credit score, then you are on the right track.
As credit checks are mandatory in the UK, all lenders perform them on loan applicants to evaluate their financial behavior. The credit scores give them a clear idea about the person’s previous records based on which they may or may not sanction a loan. So, if you have a bad credit score then it might not be too late, and you may still be able to fix it. To help you through the process, we bring you a comprehensive guide on how to fix a bad credit score and what you can do to improve your score.
FAQs | How to Fix A Bad Credit Score - What You Can Do to Improve Your Score
- What is a credit score and why is it important?
- How are credit scores calculated?
- What information is available in a credit report?
- What is a good credit score?
- What causes a bad credit score?
- What are the disadvantages of a bad credit score?
- How can I fix a bad credit score?
- How long does it take to fix a bad credit score?
- How can I get my credit file to check my credit score?
- Can I get a loan with a bad credit score?
- How to improve a damaged credit score?
What is a credit score and why is it important?
Your credit score is a yardstick used by lenders to measure your creditworthiness. It reflects whether you are someone who promptly repays debts, which allows the lender to judge your credibility. Based on this, the lender decides whether to advance a loan. In the UK, the Financial Conduct Authority (FCA) regulates all financial services providers who must abide by its rules, regulations, and guidelines. Since the FCA is responsible to maintain the integrity of the financial services sector in the UK, it lays down a mandatory pre-requisite requiring all lenders to perform credit checks before lending money. So, every time you apply for a bank loan, the bank performs a hard credit check on you. However, frequent hard credit checks can work against your best interests. It could lower your credit score and deprive you of the benefits that are available to those with good credit scores.
You can prevent the aftermath of multiple hard credit checks by submitting a single application to Money Pig instead of individual loan applications to banks and lenders. We then prevent further damage to your credit score by performing a soft credit check which does not show up in your credit file. Based on our findings and your requirements, we then connect you with lenders who are most likely to approve your loan request. This greatly minimizes the chances of loan rejection and prevents any further damage to your credit score. Finally, maintaining a high credit score is desirable because those with high credit scores often qualify for loans with lower interest rates, while those with poor credit history end up paying higher interest rates. This difference in the interest rates charged is proportional to the risk involved in advancing a loan to a borrower based on one’s credit behavior.
How are credit scores calculated in the UK?
In the UK, credit files are maintained by 3 credit reference agencies — Experian, Equifax, and TransUnion. Each of the three credit reference agencies is independent and has its own way of calculating credit scores. They do this based on your financial behavior, which is evaluated by assessing your personal information, credit history, number of inquiries, and public records.
You are likely to have a higher credit score if you have updated your permanent address in your electoral records and that matches your address in the loan agreements. That’s because lenders prefer to do business with those who have a stable permanent address that is verifiable and consistent. Next, they look at your credit history which reveals your financial behavior. So, if you have always promptly repaid your debts then you are likely to have a higher credit score, which indicates that you are a reliable person.
Also, the number of loan and credit card inquiries that you make influences your credit score. That’s because every time you apply to a bank or a financial institution for a loan, they perform a hard credit check on you and that shows up in your credit file. Finally, public records such as County Court Judgments, verdicts declaring you bankrupt or insolvent can also deeply impact your financial future. Now that you know the key factors that influence your credit scores, you must figure out how to fix a bad credit score and what you can do to improve your score and secure your financial future.
What information is available in a credit report?
Your credit report contains publicly available information about you such as your name, date of birth, address, etc… As most of this is taken from your electoral records, you need to keep those records updated in order to avoid inconsistencies. Other information available in the credit report includes details about your loan applications, credit card applications, your current and previous debts, repayments, missed repayments, late repayments, defaults, etc…
The credit referencing agencies also take your financial links into consideration. This could be your spouse with whom you jointly file tax returns, owe debts, or own properties. Other information about you such as County Court judgments, Insolvency filings, Bankruptcy filings, etc… are also available on the credit file. However, your credit report will not include your personal and confidential information such as your salary or medical history. Also, your criminal records, student loans, driving, or parking tickets will not be on your credit file. Although each of the three referencing agencies has its own data collection procedures, this is what they have on the credit file. Now that you know what’s on the credit and what isn’t, you can think about how to fix a bad credit score and what you can do to improve your score.
What is a good credit score?
There are 3 credit reference agencies in the UK and each of these has its own scales to measure creditworthiness. TransUnion would rate your credit score as ‘good’ if you receive a 4 out of 5, while Equifax and Experian calculate it differently. In the case of Equifax, a good credit score would be a minimum of 420 out of 700, whereas, in the case of Experian, you must score at least 880 out of 999. Now that’s how credit referencing agencies grade your financial behavior. However, the lender’s interpretation of these credit scores may vary and depends on that particular lender’s internal protocols. Accordingly, the lender may or may not interpret these scores in a liberal manner. Money Pig has many understanding and ethical lenders within its network that may be willing to do business with you regardless of your credit score.
What causes a bad credit score?
A bad credit score or a low credit score reflects your inability to effectively manage your finances. In most cases, poor credit history is the result of not repaying loans on time or defaulting loans. Every time you borrow a loan or get yourself a credit card, you are entering into a credit agreement with the lender, which you must honor at all times. So, when you make a late repayment or default, the credit referencing agencies take note of it. Over a period of time, it begins to show up negatively on your credit file. Your credit score is also affected by your joint borrower’s poor credit history and financial mistakes. Other reasons that can cause a bad credit score are your previous declarations of insolvency or bankruptcy.
Finally, applying for too many loans through individual lenders and banks over a short period of time can also mess up your credit scores. That’s mainly because multiple hard credit checks would be performed on you over a short period of time. You can avoid that by applying through Money Pig because we do things in a more structured manner. So, once you apply to us, we then run a soft credit check on you and share the details with our trusted network of direct lenders. Since soft credit checks do not show up on your credit file, there is nothing to worry about. This enables you to receive free quotes from multiple lenders without undergoing individual hard credit checks. Once you are ready to accept the offer of a particular lender, only then the lender would perform a hard credit check and sanction the loan amount to you. This minimizes the number of hard credit searches performed on you and protects your credit score.
What are the disadvantages of a bad credit score?
Bad credit scores can ruin your financial future and make it impossible for you to get into profitable deals like low-interest loans. Most banks in the UK do not approve loan requests from individuals with a bad credit score. Also, the few lenders who may advance bad credit loans tend to charge a higher rate of interest from those with poor credit scores. As bad credit score indicates that you are not creditworthy, there is a higher amount of risk involved in advancing money to you. Therefore, the interest rates payable by those with bad credit scores are higher than what individuals with good credit scores would have to pay. Also, persons having bad credit scores would be deprived of higher credit card limits and low-interest or zero-interest promotional deals which are usually available only to those who have a good credit score. The only way to overcome these hurdles is by figuring out how to fix a bad credit score and what you can do to improve your score.
How can I fix a bad credit score?
Most people find out about their low credit scores when their loan applications are rejected and that’s never expected. That’s because not many people know how credit ratings work, let alone how to fix a bad credit score or what they can do to improve their score. Your financial decisions continue to impact your credit ratings for as long as six years. So, if your credit score is low then you need to find ways to fix that bad credit score. You can do that by procuring your credit file and finding out where you have gone wrong. Many things can influence your credit score — multiple loans and credit card applications, being financially associated with the wrong people, poor credit history, not updated electoral address, bankruptcy, insolvency, etc… So, you need to dig into what has caused that low credit score.
In most cases, late repayments or missed repayments result in bad credit history and this may not always be your fault. Recession and job loss can at times make it impossible to make prompt repayments and that is completely understandable. However, you can prevent that from happening by creating emergency reserves in your savings account. That enables you to make monthly repayments even when you are unemployed. If none of that is possible then consider consolidating your debts. You can do that by applying for one of Money Pig’s low-interest loans to consolidate debts and continue making prompt repayments. These prompt repayments are also recorded just like defaults and late repayments. So, doing this could help improve your credit score.
Also, a bad credit score could be the result of wrong financial decisions such as too many loan and credit card applications followed by multiple hard credit searches, within a short period of time. Sometimes, it could also be due to the low credit score of someone you jointly file tax returns with or own property with. This could be your partner, spouse, children, or any other person. Therefore, if your records show any joint transactions or filings then make sure that it is with someone who has a good credit score. Also, updating your address on the electoral register along with other details helps.
How can I get my credit file to check my credit score?
Your credit file contains your publicly available data which is recorded by credit reference agencies like Experian, Equifax, and TransUnion. So, under the Data Protection Act 2018, you have the right to ask for a free copy of your credit file from any or all the three credit reference agencies. You can request your credit file from Equifax by completing this online form and access it for thirty days or request a paper copy of the same and retain it. Similarly, you can find request forms on Experian and TransUnion.
As you go through your credit report, remember that your credit ratings are influenced by your financial decisions such as your borrowings, repayments, loan rejections, etc… So, if you missed a couple of repayments due to unemployment or for any other reasons then that could lower your credit ratings. Likewise, misinformation passed on by your bank can also lower your credit scores but can be rectified. Also, other factors such as applying for too many loans within a short period of time can result in bad credit scores. You can check all of this in your credit file and plan suitable measures.
How long does it take to fix a bad credit score?
The time taken to fix a bad credit score depends on the reasons due to which you have that low credit score. You can find that out by going through your credit file which you can get for free from any of the three credit reference agencies. If you are at fault, then fixing your bad credit score can take some time but if there has been an error in recording information about you then you can get it corrected in less than a month. According to the Data Protection Act 2018, you have the right to contradict and dispute any wrong information available on your credit file and have it rectified within 28 days. Another way to fix a bad credit score is by updating your electoral records with your current address.
However, if your credit score is low because of your credit history, then it would remain on your credit file for up to six years. In the meantime, it is recommended that you change your financial behavior and start making prompt repayments. Also, avoid applying for too many loans or credit cards over a short period of time because you don’t want too many people performing hard credit checks on you. If you feel that’s going to limit your options, then apply through a financial intermediary like Money Pig. We have worked out legitimate internal protocols with our network of lenders to limit the number of hard searches performed on our customers. Now that you know how to fix a bad credit score and what you can do to improve your score, its time to act.
Can I get a loan with a bad credit score?
Most leading banks in the UK do not approve loan applications filed by those who have low or bad credit scores, but we do. Money Pig is tied-up with several direct lenders willing to sanction loans to those with a low credit score. Unlike some other unethical lenders, our lenders do not charge very high interest rates to those with bad credit scores. Instead, they strategically work out a feasible solution to get you back on your feet and improve your financial future. You can then think about how to fix a bad credit score and what you can do to improve your score so that you don’t have to go through this struggle ever again.
How to improve a damaged credit score?
If you have a low credit score then the damage is already done, but with some quick tips, you should be able to fix it. Start by promptly paying your utility bills, limit the number of subscriptions and auto payments, utilize at least thirty percent lesser than the maximum limit of your credit card, avoid borrowing debts. If you have credit cards that you aren’t using, then consider canceling them with the service provider. Also check whether your electoral record has your most updated details such as your address, relationship status, etc… You can update your address online but in case of name change or change in relationship status, you would have to post or email scanned copies of relevant documents such as marriage certificate, divorce decree along with a request to update.
When you realize your financial mistakes and are willing to work on them, you are halfway through the battle. Next, you need to find out how to fix a bad credit score and what you can do to improve your score. At Money Pig, we would be happy to assist you through this tough phase. If you have a bad credit history and are unable to find a lender, then we can offer you bad credit loans within a couple of hours. However, if your credit score is low due to multiple debts then we can still help you get a loan to consolidate debts and that too at a lower interest rate. For more details about our latest offers and for low-interest loans, Apply now.