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Households across the UK are feeling the pinch as a result of rising living costs and many are turning to borrowing to help see them through.
The problem is that borrowing costs are also rising thanks to higher interest rates. This means that if you’re thinking of applying for a loan, it’s likely to be more expensive than it was a year ago.
To get the most competitive interest rate on your loan, you will need to have a good credit score. But even if you have the very best credit score you can get at 999, your loan application won’t be guaranteed and you could still get turned down.
That’s why it’s important to understand exactly how your credit score works and what you can do to increase your chances of acceptance.
A 999 credit score is the highest score you can achieve with Experian, the largest credit reference agency in the UK. You can check your credit score and report for free with Finder.
Having a credit score this high generally means that you have managed credit responsibly in the past, never missed payments and always repaid debt on time. It also means lenders are likely to be more willing to let you borrow again – and at the best interest rates too.
However, noboby has a single credit score. As well as Experian, the other major credit reference agencies (Equifax and TransUnion) produce credit scores of their own and use a slightly different formula to work this out. Some lenders also calculate their own credit scores.
Each company considers different factors when working out your credit score. Your credit report held with the main credit reference agencies could also contain different information.
When you apply for credit, a lender will look at the data held on you to determine whether it is happy to lend to you. This data includes existing levels of debt, unused credit limits, missed payments, your employment status and your income. Each lender has its own set of lending criteria. That means you could be rejected by a lender but accepted by another.
Experian’s credit score bands are broken down as follows:
|Score band||Rating||What it means|
|961–999||Excellent||You could be in line for the best loan interest rates|
|881–960||Good||You could get most, though not all, of the best deals|
|721–880||Fair||You should have access to loans with reasonable rates of interest|
|561–720||Poor||You may get accepted for a loan, but with higher interest rates|
|0–560||Very poor||You may be rejected for a loan or find it hard to get one without very high interest rates|
Credit reference agencies collect and keep information about consumers’ borrowing and financial behaviour. The type of information they keep can include:
To get a 999 credit score, you ideally need to have a credit history that spans several years. You might think that if you’ve never borrowed before and never had debt, this will work to your advantage. But in fact this means you’ll have little to no credit history. This can make it difficult for companies to score you as there’s no way of knowing how reliable you are as a borrower.
On the other hand, if you have borrowed before, you’ve never missed a repayment and you’ve always repaid your debt in full and on time, companies will be able to see you have a good track record of sensible borrowing. As a result, you’ll likely have a higher credit score and you’re more likely to get accepted for credit again.
Another way to get a higher credit score is to keep your credit utilisation ratio low. This is how much you currently owe compared to how much credit you have available to you. For example, if you had an overall credit limit of £5,000 and you were using £2,500 of it, your credit utilisation ratio is 50%.
Your credit utilisation is worked out per credit account. The lower it is, the higher your credit score is likely to be. Try to keep your credit utilisation at 25% or below.
Having a low level of debt also works to your advantage.
There are several reasons why you could be turned down for a loan. Each lender will have its own set of criteria, but some common examples are as follows:
If you’ve been rejected for a loan, it’s worth contacting the lender to ask why. The lender does not have to give you a specific reason, but it should tell you which credit reference agency it used to assess your situation.
Once you’ve found this out, you can contact the relevant agency to get a copy of your credit report. Take a thorough look and if you spot a mistake, write to the credit reference agency to ask for the error to be corrected. You can add a 200-word Notice of Correction to explain a missed payment if needed.
If you have been turned down for a loan, it’s best not to reapply immediately afterwards. Each time you make a full credit application, a “hard” credit check is carried out, which leaves a mark on your credit file for other lenders to see. Too many hard credit searches in a short time can make you look desperate for credit. This can deter lenders from letting you borrow and damage your credit score further.
Instead, try to wait for 3–6 months before applying again.
There are a number of steps you can take to increase your chances of getting accepted for credit. For example:
Credit reference agencies use different score ranges to determine how creditworthy you are. That means both Equifax and TransUnion have different ranges compared to Experian’s, as you can see in the tables below:
|Score band||Rating||What it means|
|811–1,000||Excellent||You’re very likely to be approved for competitive credit offers|
|671–810||Very good||You’re likely to be approved for credit, but won’t necessarily be offered the very best interest rates|
|531–670||Good||You should be offered credit at reasonable interest rates, but may have a low initial credit limit|
|439–530||Fair||You have a chance of being approved for credit, but are likely to be charged a high interest rate and have a low limit|
|0–438||Poor||It’s likely your credit application will be rejected|
|Score band||Rating||What it means|
|628–710||Excellent||You’re very likely to be approved for competitive credit offers|
|604–627||Good||You’re likely to be approved for credit, but won’t necessarily have the best interest rates|
|566–603||Fair||You should be offered reasonable interest rates, but are likely to have a low credit limit|
|561–565||Poor||You have a chance of being approved for credit, but are likely to be charged a high interest rate and have a low limit|
|0–550||Very poor||It’s highly likely your credit application will be rejected|
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