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How to Use the Information in Your Credit Report to Improve Your Credit Score

You have logged in to one of the credit checking providers, (either Experian, credit karma, clearscore or credit monitor) and you have seen your credit score. Now what? At this stage, you should know from my previous post on this what a credit score is and the factors that affect it. Before you read on to understand the information available in your report, what’s the difference between a credit report and a credit score?

Differences between a credit score and credit report

  • Your report outlines your credit activity and creditworthiness, including open and closed accounts and your payment history.
  • Your credit score is the three-digit number given to you based on the information from your credit report.
  • Only you can see your credit report, but lenders can see your credit score.

It is advisable to check your report every month or six months to monitor your credit. You will be able to spot any errors that may be affecting your score or any information you can use to help improve your score. Now that you know a brief difference between a credit report and a credit score, where can you view this information?

Where to get your credit report for free

You can acquire a free one-time credit report from ExperianEquifax and TradeUnion by requesting for it on their websites. The annual Credit report is a platform that allows you to order your report from all three credit referencing agency listed above. The website will now also allows you to request it weekly through April 2021 due to covid. (This is subject to change based on information on the website).

Below is a list of providers you can use for your ease:

  • Experian: you can check your score every month for free but to view your report after the first-month trial, you have to pay a monthly fee.
  • ClearScore: you can view your credit score and your credit report for free every month. It also has a timeline graph that shows how you spend, your available credit, and your payments over time. It’s a beneficial tool to keep track of your creditworthiness.
  • CreditKarma: You can also view your credit score and report for free. They provide an insight into the factors explained above and give you tips on what you can do to improve each factor affecting your score.
  • Credit Monitor: I haven’t used this tool extensively, but I did a quick research on it. They provide an easy to understand interface with your score and report. They also have helpful articles explaining how you can improve your score.

Types of information in your credit report

Now you know where to get your credit report from, what information is typically in a credit report?

  • Personal information, including your first name, middle name(s) and last name, date of birth, and address.
  • Search history, including soft and hard searches
  • House addresses, including past and current address
  • Electoral roll
  • Financial connections, including your partner or other individuals you have a financial obligation with
  • Public information, including bankruptcies, insolvencies or court judgments
  • Notices of Correction
  • Account Information, including, open and closed bank accounts, credit accounts, account balance etc
  • Cifas (Credit Industry Fraud Avoidance System)

8 Factors on your credit report and how you can use it to improve your credit score

1. Credit Limit:

Your limit is the total of all your credit account, such as credit cards and other credit providers like PayPal. A credit limit of more than £4000 is a good start. It would help if you aimed to increase this limit up to at least £15,000 as this will further optimise your score.

How is this relevant?

A high credit limit indicates to credit lenders that you’re a low-risk borrower. It also shows them your ability to manage your expenses and borrowing. Having a high limit can help improve your score.

How can you use this?

You can request a higher credit limit on any existing credit accounts, or apply for new credit accounts. If credit lenders offer you a higher limit or your credit lender offers you a higher amount than your previous limit, accept it. However, it is good to take out as much credit as you can afford and manage.

2. Credit Utilisation:

It’s a bit of general advice to aim to use less than 25% of your available credit. If you go above this, it will impact your score. Your score drops, the higher your usage or, the closer you are to your limit.

How is this relevant?

Lenders prefer to see that you’re not using too much of your credit limit, as it can suggest you’re relying on credit too much. A lower credit utilisation shows you can manage credit well. Having some unused credit is also important because it means you have extra credit use as an emergency.

How can you use this?

It’s advisable to keep your credit utilisation under 25% on your accounts. You can also pay a little extra against your balances before your next round of statements each month. It will help reduce your utilisation towards the 1–25% range. Avoid going over 50% unless necessary and pay this back to get under the 25% mark as soon as you can.

3. Payment history:

Credit agencies use your payment history to calculate your score. All payments, including late-payments and consistent on-time payments, are taken into consideration. If you missed the payment deadline, it would be the length of time since your credit report’s last missed payment appeared on your credit report.

How is this relevant?

Credit lenders want to know that you make your payments on time to see that you honour your financial commitments. Lenders commonly offer higher interest rates to offset the risk of lending to you if you’ve missed any payments in the past. For each missed payment, it can take a long time to get your score back up.

How can you use this?

Ensure you keep on top of your credit payments. Set up direct debits, so you don’t forget any charges. You also have the option to contact the lender if you miss a payment. They can give you an alternate way to pay rather than reporting it to the credit reference agencies.

4. Electoral roll and length of time on it:

When you move or change address, it’s advisable to register to vote at your new address immediately. If you change address, your score might fall. How long you spend on the electoral roll at your address, the better.

How is this relevant?

Your time on the electoral roll helps prove your presence at the address on your applications to lenders. It suggests responsible behaviour that is less likely to result in non-payment.

How can you use this?

The longer you’re registered to vote at an address, the more this factor will improve. Your score will start improving after about a year. If you spend a longer time at that address, it will improve your score further.

5. Opening New Credit Accounts:

Opening new accounts within six months or in quick succession will impact your score in the short-term. It’s advisable to keep credit applications to a minimum of one or two in this time.

How is this relevant?

Credit Lenders prefer to see that you haven’t opened any new accounts in the last six months. Suppose you open too many accounts in a short period. In that case, it increases your obligations, making you potentially less likely to meet new commitments.

How can you use this?

Opening a new account impacts your score, so try not to open more than two new credit accounts in the space of six months to limit this factor’s impact. When there are many applications and a few new accounts, it can be a red flag. So, try not to apply for too many financial products or credit in a short period.

6. Duration of credit Accounts:

Try not to close any old accounts you’ve held for a long time as this could impact your score. Credit agencies use the age of the oldest account in your report to calculate your score.

How is this relevant?

Credit lenders like to see how long an individual has been managing an active credit account. The more financial history you have, the more it shows the lenders you’re able to meet your obligations and keep on top of your financial responsibilities.

How can you use this?

The longer you keep your oldest account active, the better for your score. Try not to close your old accounts even if you’re not actively using it unless it impacts you financially. Keeping your account open for more than a year will improve this factor, and after about five years, credit agencies will add more points to your score.

7. Mortgage:

Having a mortgage is a good sign of stability to lenders. Having this and keeping up with payments will help your score.

How is this relevant?

Having a mortgage is an indicator of financial stability to lenders. It is an essential factor for lenders as they usually consider homeowners less of a risk when lending to them.

How can you use this?

Like other credit accounts, staying on top of your payments is essential for your credit score to improve. To get this, you’ll also want to ensure that all other factors are good, so it doesn’t affect your ability to get a mortgage.

8. Cifas (Credit Industry Fraud Avoidance System):

It’s a potential fraud warning on your report. It is visible to potential lenders and shows them you may be vulnerable to fraud attempts to take out credit in your name.

How is this relevant?

When you have a warning on your report, it shows lenders that you might be at risk of fraud. So, someone might steal your information and use it to apply for credit. It makes it harder to get credit as Lenders view this as a risk.

How can you use this?

Note that this factor doesn’t affect your score, but might impact your credit applications. If you have a “victim of fraud” marker on your report, you can raise a dispute with the credit agency or request removal of this marker from Cifas.

Summary

The information provided in your report might vary slightly depending on the credit referencing agency (CRA). This information helps point out things you’re doing well and what you need to improve. You can get this report for free using credit checking providers such as Experian, ClearScore, CreditKarma or Credit Monitor.

I hope this article helps explain some of the main factors that affect your score, and you can use it to help improve your score.

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