How to Improve Your Consumer Credit Score

When you’re applying for a business loan, it’s important to understand that many commercial lenders will look at your personal credit score as well as your business’s credit score.

Lenders use credit ratings to assess how reliable you are as a borrower. A poor personal credit score could make them reluctant to lend to you and your business or offer you less favourable terms.

This guide covers everything you need to know about your credit score, including what it is and how you can improve it.

What is your credit score?

The UK has three main credit reference agencies: Experian, Equifax and TransUnion. These agencies collect information about you from public records and credit providers to create your credit score.

The score you get from each agency indicates how reliable a borrower you are and how likely you are to repay anything you borrow. The higher your score, the more creditworthy you are perceived to be, and the more likely you are to be accepted when you apply for a business loan or any other type of credit.

What is a good credit score?

Each agency uses its own scoring system, which means your score will vary depending on which one you look at. Here’s a breakdown of what ‘fair’, ‘good’ and ‘excellent’ credit scores look like for each credit reference agency:

If your score falls below the ‘fair’ bracket, you are considered to have a poor credit score. Although your score with each agency will probably differ, you should find that you fall into the same category across all of them.

How is your credit score calculated?

Your credit score is calculated using the data the credit agencies collect and hold for you. The information they use to determine your score includes:

• Personal information: This includes your name, address, date of birth and employment information. It’s important this information matches what you enter on your loan application. It will also check whether you are on the electoral register and how long you have been at your current address. 
• Payment history: This includes how you have managed credit in the past, including your record of arrears, late payments, defaults, or exceeding any agreed credit limits.
• Credit utilisation: This outlines the debt-to-credit ratio of your previous borrowing. For example, if your credit card limit is £2,000 and you only use £500, your credit utilisation is 25%. A good credit utilisation is between 1% – 25%. 
• The mix of accounts: Having several different types of accounts, like credit cards, mortgages, and loans, illustrates you can manage other types of borrowing.
• Account history length: The length of time you’ve held credit accounts can indicate how well you manage them.
• Number of enquiries: A mark is left on your credit file each time you apply for credit. Having too many of these can indicate that you’re not in control of your finances and impact your score.

Exactly how each agency uses this information to calculate your score is specific to them, but understanding what they look at can help you ensure your score is as good as possible. 

How can it affect your business loan application?

When you apply for a business loan, the lender needs to be confident you can keep up with the repayments and repay the loan in full. 

To do this, they will look at your business’s credit score to assess how well your company has managed credit in the past. They will also often look at your personal credit score to see how you manage your personal finances.

Sole traders and partnerships are personally liable for any business debts, so the lender will want to assess your credit score as well. If you own a limited company, lenders may request a personal guarantee that you will accept responsibility for any debt if your business defaults.

A poor credit score can make lenders less likely to lend to you, as you are perceived as a higher risk. You may also find that you are offered a loan with less favourable terms, like a higher interest rate or lower loan amount.

How to check your consumer credit score

It’s important to understand what your credit score is and what information is on your credit file. 

Incorrect information, such as an old address or incorrect entry, could negatively impact your score. By checking regularly, you can flag any errors with the agency and get them corrected as soon as possible.

You can check your credit information by visiting the relevant credit agency website:

• Experian
• Equifax
• TransUnion

It’s free to check with all agencies, but you may need to sign up for an account to access your report.

How to improve your credit score

There are several things you can do to improve your credit score and make sure it’s as high as it can be. A good or excellent credit score will make getting a loan much easier and could even help you access better rates and terms.

Here are some tips to help you boost your credit score:

• Register to vote: Lenders use the electoral roll to check your identity and home address. Not being registered can negatively impact your credit score, so make sure you’re on there if you’re not already.
• Check your report for errors: If you spot any mistakes when checking your report, inform the agency as soon as possible. They can correct them or flag the issue as ‘disputed’ so lenders won’t rely on it when assessing your credit report.
• Build your credit history: If you have little or no credit history, it can mean you have a low score, as it’s harder for lenders to assess you. You can build your credit score by using a credit building credit card or getting a mobile phone contract. You should also open a bank account if you don’t already have one.
• Manage your credit well: This is potentially the most important way to improve your score. Ensure you keep up with your current credit payments, stay within the agreed overdraft of your current account and avoid taking out a joint account with anyone with a poor credit rating.
• Keep your credit utilisation low: Your credit utilisation is the percentage of your credit limit that you’re using. Lenders like to see a low percentage, ideally 25% or less, so keeping it down can improve your credit score.
• Don’t move home too often: Lenders like to see stability, so living at the same address for an extended period can help improve your credit score. Moving frequently, on the other hand, may indicate you’re struggling to keep up with rental payments.
• Use eligibility checkers: When you apply for credit, the lender performs a ‘hard search’ on your credit report, which leaves a mark. Too many hard searches can damage your score, so use an eligibility checker before you apply. These perform a soft search that doesn’t leave a mark and can let you know how likely you are to be accepted.