Ever wondered why you have a “poor” credit score? Two experts explain what it actually means and what you can do to improve it.
What the hell is a credit score? Before researching for this article, I couldn’t have told you. All I knew was that I recently discovered my own mysterious score was “poor”. Despite being in full-time employment and making all my monthly payments on time, it seems like, from a credit point of view, I can’t be trusted with money.
I admittedly tend to bury my head in the sand when it comes to personal finances. But, if I’d been doing so badly, why hadn’t I known about it earlier? Who was calling the shots here? Why didn’t my bank flag this as a problem?
According to consumer credit reporting company Experian, I was not alone in my ignorance. Research from 2019 showed that 49% of adults have never checked their credit report. But this doesn’t really come as a surprise, considering a lot of my colleagues and friends avoid checking theirs. After all, credit scores don’t seem to be an obvious problem that people talk about until we’re told we have a bad one when we apply for things like credit cards, loans and mortgages.
Megan, 28, hit the nail on the head about the “cloak and dagger” nature of it all. “How can it be right that you are never educated about them and your bank never shares yours with you but then all of sudden you’re told that you have a bad one?” she asked. “You’re measured against something that can affect some pretty big parts of your life without really knowing what it’s based on. How can that possibly make sense?”
Another woman I spoke to said she’s never checked it because she’s always been too scared. A couple of others explained that, although they’d checked it recently, they both found it a very stressful experience. And my friend spent a whole lunch hour telling me about how she spent months trying to get down to the bottom of her bad rating (she traced it back to sharing bill payments with a dodgy flatmate over five years ago).
Like so many conversations around personal finance, this is a topic shrouded in secrets, confusion and shame. That’s most likely down to the fact that we’re just not taught about this stuff while growing up.
Perhaps a good place to start is understanding what a credit score actually is.
Money Saving Expert explains: “A credit rating is an indication of how a typical lender would assess you. When you apply for credit, each lender tries to predict your future behaviour based on the way you’ve acted in the past. To do it, they look at lots of different data. This may include how many applications you’ve made recently, how much you owe, what credit products you’ve had and whether you paid them all off on time.”
However, the site continues to warn: “The world of credit ratings is rife with misinformation and misunderstanding. Much of it’s because lenders don’t want it understood, and credit reference agencies want you to think it works a certain way so they can sell you extra products based on your fear.”
With that bombshell added to the mix, Stylist spoke to a couple of experts about what you really need to know.
Selina Flavius, author of Black Girl Finance: Let’s Talk Money, says the first thing to know is that having a “bad” credit score does not mean you’re a terrible person who’s bad at maths and rubbish with money.
“It usually means that you are human and have made some mistakes in the past and not managed the credit you have been leant (usually by a financial institution such as a bank or a utilities company) in the best way possible,” she says. “You may assume you have a ‘bad’ credit score if you apply for a form of credit – a mortgage, car loan or mobile phone contract – and are denied, because of something on your credit report and score. Essentially your credit score is not at the level you need it to be to do the thing you want.
“It’s important to understand that with time and patience you can improve your credit score. It may mean that for the time being you are denied access to credit or, if you are fortunate enough to still be offered some form of credit, it might not be at the best interest rate.”
Sally Francis-Miles, money spokesperson at MoneySuperMarket, adds: “Missed or late payments, bankruptcies and County Court Judgements (CCJs) stay on your file for at least six years. It doesn’t mean you won’t be able to get any credit over that period but it will be more difficult and more than likely at a higher rate of interest, especially if you’re made or declared bankrupt or have CCJs.
“In this case you may have to wait around two years at least before some lenders will consider you for cards or loans.”
Now that we have a clearer idea on what a credit score is judged on, Flavius shares her top tips on what can we actually do to improve it:
- Access your credit report to look for any errors or areas of improvement (being on the electoral roll will improve your score).
- Do not miss payments – if you anticipate that you will be delayed with a payment, speak to your creditor, let them know what is going on, they may be able to help.
- Be patient. As you continue to make regular payments and avoid missing payments, your score will start to improve.
- Create a budget to ensure you can afford your commitments.
- Allow some time between applying for new credit. Many people fall into the trap of repeatedly applying for credit in a short period of time, which can show up on your credit history and raise a red flag to lenders. Also, if you are about to make an application for something major, such as a mortgage, do not apply for something else immediately before.
- Be kind to yourself, be patient, continue working to improving your score. It will improve, and you will gain access to better deals. It may take time but you’ll get there.
An equally important lesson here is that we really do need to start talking more honestly about personal finances. While the biggest step is to take control and put a plan into action, it all starts by having a conversation with yourself, a friend and an expert about the situation. Because that’s what I’ve done today and, despite realising that there’s probably a long road ahead to achieve flying colours in my next test, I now feel better about failing it.
Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.
Black Girl Finance: Let’s Talk Money by Selina Flavius is published by Quercus Books on 21 January, £12.08 at Bookshop.org.
Images: Getty, Quercus Books