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Every time you apply for a large amount of credit, the creditor will calculate your credit score to determine whether or not you’re a viability or liability. Approval for home loans and car finance as well as the percentage of interest you will pay are both determined by your credit score. The higher the score the better chances of getting credit approved and at a lower interest rate.

This score is based on the information found in your credit report and enables lenders to determine how risky a client is. Each creditor calculates this score differently using the information they receive from credit bureaus such as Experian or TransUnion ITC. They provide different credit scores for the same people.

To improve your score you need to know what your credit report says about you. If there is any false information on the credit record, you must see that it is fixed before applying for credit. To improve your credit score focus on the following:

Debt ratio
This refers to the gap between how much debt you have and your credit limit (that is, how much debt you can afford). The larger the gap, the better the score. This may mean paying off some big debt.

Number and amount of late payments
Your payment history comprises a large part of your credit record (35%). Even though you have paid off your debt, when you paid it off counts in your favour. Try not to make late payments as this has a negative impact on your credit report.

Type of debt
The type of debt you have makes up 10% of your credit score. Debt can be installment debt, revolving or credit card debt. Revolving credit doesn’t look good on your report as the monthly minimums vary from month to month depending on how much you choose to spend. Try and avoid this type of debt.

Limit credit enquiries
The number of credit checks on your report is evidence of the amount of credit you’re applying for. The more people who check your credit the more it seems that you’re trying to get, and the more unlikely you are to pay it all off. For this reason, limit the number of queries that creditors make onto your account.

Length of credit history
This makes up 15% of your credit score. The longer your history the higher your score will be. This enables lenders to determine how reliable the credit report is.

Understanding what creditors look for when calculating your credit score can help you improve your score and thus your chances of getting credit at a good interest rate.