Your credit score is important because it determines whether you are accepted for different types of credit, such as a 0% credit card, personal loan, or even a mortgage.
Therefore, it’s always a good idea to keep track of your score and look for ways to improve it. Although there are already proven ways to increase your credit score, there will soon be another way. Here’s what you need to know.
Why is your credit rating important?
Lenders look at your credit score to determine your creditworthiness. If you have a good credit score, a lender will consider you more likely to pay off the debts you owe. Because of this, you are more likely to be accepted for the most generous offers.
Importantly, there is no magic credit score that applies across the board. This is because lenders use different rating agencies. There are four such agencies in the UK who will grade you using their own scales.
The four rating agencies are:
- Trans Union
If you don’t know your credit score, it’s worth checking. In previous years, you usually had to pay a small fee to do this. However, it is now possible to do so without paying for the privilege. Read our article to find out how to check your credit score for free.
How can you increase your credit score?
To calculate your score, rating agencies will look at how you have done with credit in the past. For example, if you’ve always stayed within your credit limit and made repayments on time, chances are you have a decent score.
If you haven’t had much access to credit before, it can be difficult for credit rating agencies to determine your creditworthiness. Fortunately, however, there are ways to boost your credit score, including:
- Get registered on the electoral lists
- Always make credit card refunds on time
- Minimize credit requests
- Checking your credit report for errors
- Respect your credit limit
- Canceling old cards that you no longer use
For more advice, see our article on how to improve your credit score.
How will it be easier to increase your credit score?
TransUnion, one of the UK’s three credit rating agencies, has announced that it will start taking Buy Now Pay Later (BNPL) refunds into account when calculating credit scores. This will be the case from the summer of 2022.
Previously, the BNPL sector was ignored by rating agencies. This means that those who used BNPL and made regular, on-time repayments saw no impact on their credit score.
However, this will change from the summer of 2022, which can be particularly beneficial for those with a limited credit history. As Shail Deep, Chief Product Officer of TransUnion, explains, “These changes will really benefit those with thin credit records, supporting financial inclusion and broader access to credit, while helping to ensure that Financing providers have a holistic view of an individual’s borrowing, so they can use this information to help ensure the right outcomes for consumers.”
Of course, there is another side of the coin to consider here. While the change may help BNPL users who make timely repayments, users who struggle to pay on time could see the opposite impact on their credit scores. Citizens Advice suggests that up to one in three buyers using BNPL have missed payments.
Do you want to know more about BNPL? The BNPL sector has grown considerably in recent years, but it has its fair share of criticism. To learn more about the downsides, check out our article that explains the dangers of BNPL and how to avoid them.
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