If you're applying for a mortgage, a loan or even a mobile phone contract in 2021, then your credit score will be key to deciding your eligibility.
Your credit report will be provided to your chosen lender by a credit reference agency (CRA), most likely one of the 'big three': Experian, Equifax and TransUnion. The information in your report is distilled into a credit score.
While they all calculate your score slightly differently, most of the factors they use to make these calculations are the same.
So, whether you're trying to improve your score after the financial strains of 2020, or simply trying to ensure you're offered the best products this year, there are a few easy steps you can take to maximise your score.
Experian says this alone will increase your credit score by 50 points.
If you move house, it's important that you are registered to vote at your new property, even if it's not an election year. It's worth bearing this in mind before making any new applications.
Fundamental to your credit score is being able to demonstrate that you are responsible borrower: that you can repay your bills on time and stay within any limits you've been given.
If you are still struggling to pay off your debts or make your minimum payments, you should inform your lenders as soon as possible and try to negotiate further support. If this is no longer a formal payment holiday, it will appear on your credit report.
If you are late with a payment or miss one, it will show up on your report within a month. One late payment on a credit card or loan can dent your score by as much as 130 points, according to Experian.
A missed payment will show on your report for six years, although its effect will lessen. If you've missed only one payment, your score could start to recover after around six months and should be fully recovered after a year.
The innovation means that real-time banking information can be used to calculate your score for the first time.
This includes your income and general spending, as well as regular payments for things like council tax, savings and investments, and digital entertainment subscriptions like Amazon Prime, Netflix and Spotify.
Experian says that 17 million people could boost their score by up to 66 points by using the tool, providing a quick and easy way to increase your score in 2021.
Tenants often complain that their rent doesn't count toward their credit score, especially as monthly rental payments can sometimes dwarf mortgages.
However, there are now a few ways that your rent can be included on your credit report and help improve your score.
Like Experian Boost, CreditLadder and Canopy use open banking to allow them to track rental payments through your current account - with your permission.
According to Experian, three in 10 people have never checked their credit report.
Not only does this mean that they won't know their chance of getting approved for financial products, but it also means they won't know if their report contains any errors.
Whether it's a minor mistake like a previous address being incorrect or a major error like a wrongly recorded missed payment, it can all affect your score and your ability to get credit. It could even help you spot products that have been fraudulently applied for in your name.
Also if you have taken a payment holiday or changed payment amounts, it can't hurt to check they've been recorded accurately.
If you do find an error, you can take it up with the lender directly, or alert the CRA who will contact them on your behalf. The CRA has 28 days to deal with the dispute and let you know what action will be taken.
As the name suggests, the main aim of these cards is to help you improve or build a credit score, so they often have lower limits and higher interest rates than other credit cards, to encourage sensible, credit-building usage.
These cards could also come in handy if you have a 'thin file', the term CRAs use for borrowers who don't have much credit history.
You may think that this would count in your favour, but this is often not the case. CRAs need your history to help predict what kind of risk you are to lenders.
When applying for credit, most lenders will offer a 'soft search', which allows you to see your chances of being approved, without making a formal application and affecting your credit score. Always use these if possible.
Third parties and agencies also offer eligibility checkers that can 'pre-approve' you for a card, meaning your application should be successful.
This is an important step, as while your credit report provides most of the information needed for an application, CRAs don't actually make the decision.
In July, for example, the number of customers being pre-approved for credit cards using Experian's tool (24%) was half the rate it reached in August (50%). This wasn't because of anything to do with Experian or credit scores, but because of the economic certainty after the first lockdown, which saw many lenders tighten their lending and affordability criteria.
Checking your eligibility first means you shouldn't be affected by a rejection that is outside of your control.
If you do make an application and are turned down, try not to immediately apply for another product.
Multiple applications in a short period of time can count against you, as it may suggest you are in financial difficulty.
Whether an application is successful or not, it will be visible on your report for 12 months. Generally, it won't affect your chances of being approved for credit after three months. In fact, if you go six months without opening an account, you can get a boost of 50 points according to Experian.