A credit score is a three-digit number which suggests the likelihood of whether a person will repay debt or not. It can then be used by banks and lenders in order to decide whether or not the applicant will be approved for financial products such as credit cards, mortgages, and loans. There are three major credit bureaus – Experian, Equifax and Callcredit – which all use different methods for determining a credit score. While they may use different credit scoring models, the scores will typically range between 300 and 850, with the higher scores being the better for borrowers.

There are a number of different things which can affect a credit score, as Credit Karma explains.

This includes payment history, such as paying credit card bills late – which can potentially have a negative impact.

The length of one’s credit history, the types of credit one currently has, and their credit utilisation may also play a part, as can recent credit.

A spokesperson for Credit Karma said of the latter factor: “Creditors may review your credit reports before they make a decision to lend to you.

“In some cases, A hard inquiry can hurt your scores. Usually though, a single hard inquiry has little effect on your score.”

So, how can a person improve their credit score?

Paying bills on time

It seems that ensuring bills are paid on time on a regular basis could be important.

“Setting up a standing order or a direct debit is a good way to ensure your bills are paid on time each month,” Credit Karma suggested.

Managing a small overdraft and repaying debt

Showing good borrowing behaviour may also have an impact.

“Having a small overdraft or credit card and regularly managing it and paying it off can help to improve your credit score, as it shows lenders you can be trusted with credit,” the credit specialists said.

“Pay off your debts and keep your debt balances low at all times to show you are low-risk.”

Avoiding lots of hard credit inquiries

While it may be tempting to take advantage of different offers on plastic, Credit Karma warned against setting up lots of credit card deals all at once.

They said: “Don’t open too many credit cards at the same time – this can generate multiple hard inquiries, which may negatively impact your scores.”

Not closing old credit cards

“You can risk shortening the length of your credit history by closing old cards,” Credit Karma said.

“Old accounts can impact your credit utilisation ratio as well.”

Opting for variety

Diversify a credit mix can be of benefit when it comes to a credit score, it seems.

Credit Karma said: “Lenders typically like to see a mix of credit, such as credit cards, student loans, car finance and mortgages for example.”

READ MORE: Credit score WARNING: Are you damaging rating without realising? It may affect a mortgage

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