Your credit score is based on a number of factors but largely reflects how well you have paid other credit in the past and how much you have outstanding. So if you ever apply for credit, the provider will run a credit check on your name to see this information, which is stored by the three main credit reference bureaus in UK - Experian, Equifax and CallCredit.

Credit scores are divided up in five categories: very poor (0 - 560), poor (561 - 720), fair (721 - 880), good (881 - 960) and excellent (961 - 999). People with a good credit score will demonstrate a long history of paying their bills on time whereas bad credit customers will have a pattern of missing monthly payments.

Generally speaking, the higher your credit score, the more likely you are going to be approved for personal loans and mortgages in particular. Above all, you will have access to better interest rates and credit limits than those with bad credit. By having good credit, you are deemed at less risk of defaulting on payments so merchants are happy to provide you with a better rate.

However, this means that if you have a poor credit score of 720 and below, it will be harder to gain access to credit and you are likely to pay higher premiums for your cards and loans.

But your credit score can go and up down to reflect your current financial situation so there are several things you can do to improve your credit score.

Join the electoral roll

This is the simplest thing you can do to improve your credit rating. By joining the electoral roll, you are confirming your identity and address with the local authorities. So if you are applying for a loan, the lender will feel more comfortable lending to you knowing that you are a real person with a real address. Click here to join the electoral roll.

Make your loan and card repayments on time

Making up 35% of your credit is how well you have made loan and card repayments. If you miss a monthly repayment or are in an arrangement to pay, it will show on your credit rating. But it is only temporary because if you missed a few payments but then made several payments on time, your credit score will eventually improve.

With this in mind, you should prioritize paying your bills on time. Since many consumers in the UK get paid at the end of the month, they tend to set up a direct debit at the beginning of the month to automatically cover their bills.

If you cannot pay a credit card, mortgage or loan payment, you should speak to your lender as soon as you can who may be able to offer a ‘payment holiday' so you can skip payment for a month and this will not impact your credit score.

Credit builder credit cards

For many consumers and young people in particular, they cannot access the finance they need because they don't have any credit history and therefore they don't have a good credit score. The people that fall into this category may certainly be good customers to lend to; they just haven't had the chance to show their creditworthiness.

With specific credit builder credit cards, you can benefit from improved rates to start buying goods on credit and get used to repaying credit card bills each

month. This will show prospective lenders that you are used to managing credit and paying on time and will naturally improve your credit score.

Limit your number of applications

By making too many inquiries for credit cards or loans, specifically in a short space of time, it will negatively impact your credit score. This is because it shows lenders that you are desperate for quick funds. So if you are in need money, it is worth being that extra bit patient to hear back from lenders or finding an alternative like selling old items or borrowing from a friend.

What does not impact your credit score?

There are a lot of everyday bills that actually do not affect your credit score. For instance, failing to pay a mobile phone contract will not worsen your credit rating, unless you pay for it by credit card and miss repayment on your credit card bill. Also not included in your credit score is how well you have paid council tax, utility bills, rent and prepaid cards.

To compare credit cards and loans for good and bad credit, visit: https://quiddicompare.co.uk/