5 Ways to Protect Your Credit Score
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Why do Banks Conduct Credit Checks?
Credit scoring carries on whether you like it or not. Several credit reference agencies, including familiar companies such as Equifax and Experian, compile financial information about UK consumers. Beginning with your earliest credit relationships, the agencies keep track of your credit usage and payment history. The data ultimately contributes to your credit rating, which is typically expressed as a three-digit “score.”
Traditional lenders rely upon credit scoring when reviewing loan applicants; strict credit standards are applied. Exacting credit requirements help lenders reduce risk, allowing them to lend money to applicants most likely to follow through with repayment. If your score doesn’t measure up to an institution’s credit threshold, you may be passed over for funding.
UK finance options include everything from multi-decade mortgages to ?1,000 loans, aimed at short-term spending demands. Stringent credit scoring requirements at banks age, but online lenders sometimes have greater flexibility approving imperfect applicants.
Although credit reference agencies operate independently, your actions ultimately control your credit score. In general, positive credit outcomes strengthen your credit rating, whilst poor results with creditors have the opposite effect. These proven recommendations can help you generate a good credit score or improve upon your current designation.
- Make Timely Payments – Your payment history is important to creditors, because past practices offer clues about the future. A low credit score, resulting from payment problems, throws up red flags for lenders, reducing your access to credit. On the other hand, a consistent history of on-time payments not only boosts your credit score, but also assures lenders you are a low risk for default. When you do pay late, a credit card company or lender may offer a one-time concession, allowing you to catch up without serious consequences. However, a pattern of late payments is sure to spark negative credit reporting. After suffering late payment setbacks, you may be able to restore your score with a period of prompt payments, but your credit rating will remain diminished for months – even years.
- Don’t Open Unnecessary Credit Lines – Credit card companies, in particular, offer aggressive membership incentives to lure new customers. Although the offers may be tempting, opening too many accounts can have a negative impact on your credit score. For the best results establishing and maintaining a healthy credit score, avoid adding unnecessary lines of credit. Instead, maintain enough open credit to cover costs, without filling your reference file with excess accounts.
- Keep In Touch With Your Credit Score – Credit scores are powerful, influencing personal access to loans and lines of credit. Yet many UK consumers are not in touch with their scores. Despite their best efforts to maintain accurate data, credit reporting agencies make mistakes, impacting individual credit scores. Failing to monitor your score may result in undue credit downgrades. To protect consumers from credit reporting errors and omissions, regulators require credit reference agencies to furnish annual copies of individual credit reports, free of charge. If your credit file does contain incorrect information, regularly reviewing your credit report enables you to make corrections and updates, before inaccuracies create lasting credit problems.
- Clear Your Debts – A strong track-record of consistent credit outcomes is quickly displaced by delinquency and default. To protect your credit rating, follow through with payments until you’ve fully met repayment obligations. Reaching a zero balance and satisfying loan payback requirements reflects favorably on your credit score.