Many things can affect your credit score, both positively and negatively.  A full credit report is made up of 3 different types of financial data:

• Public Record Data (including any previous debt orders and County Court Judgements)
• Industry Data (which includes anything from mobile phone payments and gym memberships to an overdraft with your bank)
• Derived Data (this includes the addresses linked to you and those that you’re ‘financially associated with’, as well as any previous searches you may have undertaken for credit).

All of this data is accumulated to produce a full financial report and with it comes a top line number to represent it: this is your credit score. This will change over time, as does the data and information within your full financial report.

There isn’t a single scoring model - different credit agencies will have different minimum and maximum scores. Different lenders will also use different credit reference agencies to assess affordability. As a result, ‘good credit’ can vary based on the agency running the checks.

Whilst this does seem a little confusing, the scores do tend to sit within the same brackets, with 0 being very poor and 700 usually being the highest. Each score will also come with an indication from that credit agency as to whether it is good, fair or poor.

Before you take the first steps towards applying for credit, run your profile through a few different credit agencies and this will give you a better picture of your overall rating.

No, savings accounts will do little to improve your credit rating, as they are not a credit product. However, they can indirectly help keep your credit healthy by providing you with a financial safety net. For example, building an emergency fund will help cover essential costs should you suffer a loss of income, therefore preventing you from missing payments or getting into debt.

A ‘good’ credit score is essential if you’re looking to buy a house. However, there isn’t a minimum rating you need for a mortgage, as there isn’t a universal scoring system. Credit reference agencies have their own scoring systems, so your score can differ depending on which one you use. Generally, the better your score the more likely you are to be accepted for a mortgage (assuming you also meet the other criteria).

As a guide, the following scores are generally considered to be good:

• Experian’s scoring ranges from 0-999, with anything above 881 considered good. 
• TransUnion’s system ranges from 0-710, and any score above 604 is considered good. 
• Equifax’s scale runs from 0- 700 and anything above 531 is good.

Improving your credit rating can be quite a lengthy process, especially if you haven’t taken care of your rating in the past. Building a bad rating into a good one will take some time, so the sooner you start making improvements the better.

Here are some quick and simple steps you can take which will get you well on your way to financial freedom.

1. Check for discrepancies

You should check your credit report regularly. It’s extremely common to find simple spelling errors in your personal data, such as addresses or marital statuses, that don’t match up within a report. These can cost up to 130 points and can’t be found in the credit score alone. So it’s a good idea to access your full financial statement online and amend any errors. 

2. Register to vote

Having your name on the electoral roll can have great perks when it comes to your financial profile. Being registered to vote is considered a sign of stability and makes it easier for lenders to match up your data and check that you are who you say you are.

3. Avoid a lot of hard searches

Making several full applications within a short period of time will have a negative impact on your score. Try to avoid making several full applications within a short period of time. These are known as hard searches and show up on your credit history with black marks if you’re repeatedly rejected. 

We recommend you undertake ‘soft searches’ with your desired lender before making the full application. This usually gives you an indication of whether you’ll be accepted without affecting your financial profile. 

4. Monitor your bank balance

Credit reports pull in data from the past 6 years, so whilst you may think previous debt is over and done with, it will show up on your report. Keep up with all your regular repayments and try and pay off as much as you can to show future lenders it’s been settled. 

If you’re still concerned about past debt scuffing your chances, you’re often able to include a short explanation within your report that the lender may take into account when calculating your eligibility.

5. Don’t max out credit cards. 

When a credit card is maxed out or if you sit dangerously close to your limit, it’s likely that you will be penalised. Credit and debit cards make up a considerable percentage of your final score and act as an indicator for unhandled debt.

Improving your credit score isn’t something that can be achieved overnight. It can take anywhere from one month to a few years, depending on your unique financial situation. However, don't let that discourage you. With a little commitment and perseverance, every credit score can be improved.

Responsibly using your overdraft and paying it off regularly can have a positive impact on your credit rating. This is because your overdraft will be listed on your credit report as a debt. Lenders will be able to see that you have an overdraft, what your credit limit is, how much of your overdraft you’re currently using and whether or not you’re paying it off.

Using Klarna won’t impact your credit score. However, lenders can view your credit file and information such as late or unpaid balances and payment holidays. To ensure a good credit history while using Klarna's payment options, it's important to make your repayments on time consistently.

Applying for PayPal Credit can harm your credit score. PayPal is partnered with Synchrony Bank, which will review your application and complete a full hard credit check. This hard check will appear on your credit report for 2 years and could lower your credit score by a few points. 

Since 2019, PayPal Credit reports information to credit bureaus, which means that if you miss a payment or are late, it might also get published on your credit report, further lowering your score.

Remember, one hard check won’t hurt your credit score too much, but applying for several loans in a short period could reduce it by quite a lot.

Clearpay won't impact your credit score as, according to Clearpay,  it doesn't perform hard credit checks or report timely payments to credit agencies. However, this also means it won't help build your credit either.

If you're struggling with debt, you may consider a debt solution like bankruptcy. This will allow you to write off some or all of the debt, but it will hurt your credit score and remain on your credit file for several years. 

As a result, it may be difficult to secure personal loans or mortgages with this mark on your credit file. It's also important to remember that debt solutions should only be considered as a last resort when consolidating your debts.