119. The Secret to Building a Good Credit Score and Smart Money Habits

In this episode, we’re breaking down everything you need to know about credit scores — what they are, why they matter, and how they can impact your financial journey. I’ll walk you through the basics, including the three credit reference agencies in the UK (Experian, Equifax, and TransUnion) and explain why your credit score might look different depending on where you check it.

We’ll also talk about practical ways to build and improve your credit, whether starting from scratch or trying to repair a less-than-perfect score. I’ll cover the difference between a soft and hard credit check, why it’s essential to know the difference, and how these checks affect your score. Plus, I’ll highlight some credit builder platforms that can help you take control of your credit and get on track toward achieving your financial goals.

Whether you’re new to credit or want to improve it, this episode will give you the tools to make smarter financial decisions. Let’s take the mystery out of credit and put you in control of your financial future.

Chapters

• 0:00 Understanding Credit Scores and Reports
• 8:58 Understanding Credit Files & Building Credit
• 17:34 Utilizing Credit Builders for Better Credit
• 21:50 Improving Credit After Rejection

Transcript

Speaker 1: 0:00

Hey guys, and welcome back to the Penny Savants podcast with your host, kia, and this is a podcast where we aim to dispel your myths, simplify difficult financial jargon and rectify your own personal problems. Happy Monday, everyone. I hope you've had an amazing weekend and I'm bringing you another incredible episode solo, solo, solo, solo. If you listened to last week's episode, you know I was also alone, but we are back again and it's just going to be me. But today we're talking about a very big topic, one that comes up every so often.

Speaker 1: 0:32

I was going through the comments that we get on social media to see what some of the common themes that always pop up, and one that I'm going to talk about today is all about credit. What does credit mean, how does it work and, more importantly, what makes up your credit score? So I thought it'd be nice to deep dive into it for anyone who's looking to better understand what their credit score means and how they can improve it over time. First things first, what exactly is a credit score? So a credit score is a score given to you by lenders that basically denotes how good or responsible of a borrower you are when you go to borrow money, whether that's for a loan, an overdraft, a credit card or even things like financing. Lenders look to your credit score to know how reliable and how responsible you are paying back your debts. Your credit score can be found by logging on to one of the three credit reference agencies platforms, and the three that we have in the UK are TransUnion, experian and Equifax. If you use a third party to check your credit score for example, I use Credit Karma to look at my credit score they will use one of the three credit reference agencies to get your credit score from. So it's important to note here that if you check your credit score on more than one platform and I'm not talking about the three credit reference agencies that we just mentioned so let's just say you use Totally Money Credit Karma and ClearScore, use Totally Money Credit, karma and ClearScore it's important to check and see what credit reference agencies those platforms are using to find your credit score, because if they all use the same platform so let's just say all of the three that I just mentioned Credit Karma, totally Money and ClearScore all take their credit scores from Experian your score is going to be the same across all of them and you want to see what credit score do you have on each three of the credit reference agencies, which is why it's so important and it's recommended by the credit experts, to check your credit score on all three credit reference agencies at least once a year.

Speaker 1: 2:17

When you do so, you're going to find a discrepancy. You're going to say to me but my credit score is different on each single platform. Why is that? The reason being is that your credit score is made up of different factors, so it could be how good you are at paying bills back on time, how much credit you take out, how many applications you've made in the last year a range of different factors. The difference is that credit reference agencies place different amounts of importance on these different factors. So, for example and this is not fact Experian might think it's more important to know how reliable you are at repaying back your loans, whereas Equifax might think, actually no, the number of applications you've made in a year is more important to us. That difference then generates a different credit score that you get on these different platforms. On top of that, each credit reference agency picks a different number. That is, their highest score. As you'll know from experience, their highest score is 999, whereas the other two might be a different number. So all those things combined, that is why you have a different credit score on each platform, but it is very important to check your credit score across all of these platforms at least once a year. Like I mentioned, credit is such an important part of our lives and if you're someone who's listening, who doesn't use credit or hasn't used credit yet, I guarantee you at some point in your life you're going to use credit. Credit comes in so many different forms. I mentioned a few in the beginning, but some that you might not know is even things like a phone contract, car financing or getting any product on finance is going to look at your credit score. So it is so important to make sure that you're looking after and preserving your credit score from early.

Speaker 1: 3:51

When I was younger, at 20, I decided to do just that. I said you know what? It is a time for me to really look after and nurture my credit score. So, like any 20 year old does, I went and I applied for a credit card. I applied for one credit card and I remember I applied and I waited 24 hours and I'd heard nothing from the application. So naturally, I assumed that it must have been the client, because why have they not said anything? 24 hours later, I went and I applied for a second credit card with a different platform, different lender. Lo and behold, two days later I found out both had been approved and both had given me an a thousand pound limit. So I meant I had two thousand pounds.

Speaker 1: 4:25

At 20 years old, that number could only result in nonsense. That's the only way I can put it. I spent my money on absolute nonsense. I remember taking my friends to Nando's. I remember doing online shopping. I just I don't even know what I spent that money on. All I did know was I thought it was my money, which is obviously not the, which is why it's so important to preserve and look after credit from early and treat it as a tool. Credit is not something that's inherently bad. It is actually very useful if you know how to use it. If I fast forward towards the end of the story, don't worry, I'm no longer in debt. I paid that off. Within eight months of pretty much racking up that debt, I realized you know what. This is not sustainable. This is not sustainable. It isn't my money and I need to make sure that it's given back.

Speaker 1: 5:07

One of my credit cards has a 0% interest, which meant that for the period of time I believe it was 18 months anything I'd put on that credit card, I only paid the raw balance. So if I put on I don't know a 500 pound purchase, it's pounds plus interest, which is usually the case for most credit cards. It might be 29.9%, 19.9%, whatever interest you're getting. But for that credit card, for the 18 months I had 0% interest. It meant that my 500 pound purchase was only going to be 500 pounds, providing that I paid it off within 18 months that I'd been given 0% interest. So that was great. But the other credit card was accruing interest, so I had to figure out a plan of how to pay it back. I planned it out that eight months of a bit of sacrifice, but I could clear off my £2,000. I think that works out to be about £350 a month. I was doing roughly that to try and clear that down, but I made it happen and I got rid of it, which is why it's so important to factor in your credit score and factor in the impacts that using credit could have.

Speaker 1: 6:05

Often, when I talk to people about credit scores, they're like Kia credit scores. I understand them. However, I'm weary because everything that I do, even checking my credit score, can have an effect and bring it down. So let's talk about a different types of searches that can happen on your credit file. There's a soft search and a hard search. Now, a hard search is a type that you're probably most familiar with. When you apply for a new line of credit, whether that is a credit card, loan, overdrafts, any of the ones we've mentioned you're performing a hard search. The reason being is you're applying for this and lenders now are going to take a deep dive into your credit score. They're going to have a look and see what's in your file. Have you been paying things back on time? What are the credit reference agencies saying about you as a borrower? Due to the deep dive nature of a hard search, this can impact your credit score, whether you get approved or not approved. The impact is obviously bigger if you're not approved, but it will also impact your credit score because you're making an application.

Speaker 1: 7:02

I used to work in Apple and when I was at Apple, we would have people come in who wanted to take out iPhones. They wanted to buy an iPhone and they wanted to get it on finance, and it was part of our jobs the people who would sell the iPhones on the shop floor to facilitate that process. Now, it wasn't part of my job to educate them on credit scores. However, I felt obliged to educate them. What I'd have sometimes is people would come in, we had the iPad and they would be there typing in their details, putting everything. They'd ask me questions about what do I need to put this there and I'd help them through the application process and at the end we'd click submit. At the time, our finance partners I say our, I'm not a part of Apple anymore At the time the finance partners were, I believe it was facilitated through barclays, who were actually providing the finance. So when you click submit, it will be sent off to barclays and then barclays would make a decision, usually within a couple of minutes, sometimes up to 20 minutes, anything longer.

Speaker 1: 7:55

We would have to get on the phone as the sales people to help and find out if the application process was stunted, if there was an issue, if it's going to get rejected, accepted, what was to happen? And I had a few people who would come in. They'd do the application process, they'd go through and we submit it and within maybe about five minutes, we'd find out that it's been declined. Now we don't know why it's been declined. Barclays would often know that there was something on their credit file. They might not know exactly what it is, but they'd say we ran a check and it came back negative. So we had declined that person their finance. So we wouldn't be able to give them, you know, guidance, because sometimes they'd ask me is it my score, is it this, is it that we don't know? It just says declined. What people would want to do is they want to run it again. Now, what we've just mentioned is that hard searches will impact your credit score, whether it's approved or declined. So running it again in such a short space of time it's usually recommended that you wait three to six months for another hard search If you're applying for credit again. Give it that break. But what they'd want to do is run it again straight away. Now that, as we know, really does impact your credit score, which is why it's so important to understand how these searches work.

Speaker 1: 8:58

Then, on the other side, we have something called a soft search. Now, soft search is probably something that you've encountered yourself If you're someone who's taken out car insurance, phone insurance, travel insurance, just having a look through the market, you have most definitely done a soft search. Or if you've checked your credit score, you've also done a soft search. So a soft search is usually when you're trying to compare the prices of things. So if you're trying to compare the price of, for example, for me, car insurance, I will put in my details it's usually top level. You know my name, address, roughly my income, what's my household like, who do I live with? Am I single, married? Top level information about me. The lenders don't have the full picture but, based on what you've given to them, they will let you know what's available to you and what you're likely to be accepted for Now. The reason why it's likely and not definitive is because the lenders still need to do a deep dive, which would be a hard search. If you found one on the comparison site that said right, I want to go and apply for this, you click apply. And If you found one on the comparison site said right, I want to go and apply for this, you click apply and then that's when the hard search will be carried out. But a soft search, just comparing, it's just top level. This is what you'll be offered Now, soft searches have little to no effect on your credit score, the reason being is it's not really doing that deep dive, it's not really having a look and sifting through your credit file, sifting through your credit past, nothing like that.

Speaker 1: 10:17

It's just top level information that you're giving the platforms to roughly see what you'd be accepted for. And that's the exact same with checking your credit score. I've had people tell me that they don't check their credit score often because it affects their credit score. Now, yes, does it have an impact? Yes, but it's pretty much negligible. You're not going to see a drop in your credit score because you've checked it. I try to make it a habit to check my credit score once a month, usually on payday. I think that's a good time to remember and say right, it's time to have a look at my credit score. What am I looking at? What does that look like and where am I at? Especially for someone who's trying to build up their credit or reach a certain point, it's definitely worthwhile making it part of your habit checking your credit score regularly. So we now understand how credit scores work.

Speaker 1: 11:01

Now let's go and talk about what can happen on your credit file. Just separate out. Your credit score is a score given to you by lenders that denotes how good or responsible of a borrower you are. Your credit file, however, is your whole credit history. The best way I heard it described by a credit expert was that it's almost your financial CV. So on your credit file you'll see everything, usually for the last six years, when it comes to your credit. So any missed payments, any applications you've made, any canticle judgments, anything that's been any strikes on your credit file, will be on that file. You can request a free copy of your credit file from any of the credit reference agencies, so that's Experian, transunion or Equifax. They will give you a free copy. But it is really important to make sure that you're checking your credit file and checking for any inconsistencies.

Speaker 1: 11:51

I'll give you another story. A few years ago I want to say maybe about four years ago now I have a credit card, but I wasn't really using my credit card. You know I'd make purchases here and there, but not really anything big, nothing major. I had my credit card and after about six months so I was paying. You know I had to set up direct debit to pay off my credit card in full every month. Then, at one point. I saw it come out and it had paid and I said I don't remember spending this much money. Let me go and check and see what I bought. It might have been things I tapped for, but I'd forgotten. I said, let me go and check. I had a look and someone, probably from online, had found my credit card details and had been using my credit card for a good couple of months. When I went back through it was mainly on Uber, eats and Deliveroo and Uber, but they'd been using my credit card for a good few months. Now when I looked at my credit file, that shows up as it being used. So I had to contact my bank and know what happened. They'd removed all of that from my you know, from my statement so it wasn't my credit file. They also reimbursed me the money because that was fraud. Someone had sold my details and spent money on my account.

Speaker 1: 12:59

But anything can show up on your credit file On very rare occasions. Sometimes people can have a case of stolen identities, where people have cloned their identity whether it's their license, their anything birth certificate and have gotten applied for lines of credit in their name. That can all be shown on your credit file. You'll be able to see what lines of credit you have currently open, so what accounts you have open, any missed payments, any county court judgments anything that is open is on your credit file.

Speaker 1: 13:30

Now, if you have missed payments, that will affect your credit score. That will bring it down. So if you're someone who's like, oh, I forgot to make a payment with my credit card last month, that will show up in your credit file and that will stay on your credit file for six years. However, it's important to note that if you have missed anything like that, the impact on your credit score will reduce over time. So if you missed a payment last month, that will be in your credit file and likely you will see your credit score drop the following month or a couple months after that. Now the impact it has on your credit score because it'll probably hold it down for a bit will reduce after about two years. So it won't matter as much. After about three to four years it will have little to no impact on your credit score. So it's important to note that if you have messed up last year and you're like, oh, do you know what? I really messed up with credit last, after the first two years of having it on there, it will have a lesser impact on your credit score until after six years it's completely wiped out. So that's an important to note, and that is with most things that go in your credit file. And now, the reason I say most is because certain strikes on your credit file can last longer than six years, but in general, most strikes, missed payments, anything that you have on there will last and stay on your credit file for up to six years. So make it a habit to check your credit score, but also, in that, check your credit file. We've spoken about what credit files are, how credit scores work.

Speaker 1: 14:49

Now, how can you build credit? There are a couple of ways, and the last one is probably the most interesting one, because I've tried it out myself and I think it's one you should have a look at. But first and first, if you want to put it in a credit score, naturally number one you need to have credit to be able to build credits. So if you are someone who doesn't have a credit card, doesn't have an overdraft, has basically no borrowing quotation marks, it's going to be hard for you to put up credit, which is why people usually get credit cards to do that If you are someone who's like you know what. I don't know if I'm responsible to just have a credit card. I don't know if I can not blow it and not spend it. That was me at 20. So there's no judgment here, no shame here at all. I understand.

Speaker 1: 15:32

What I would recommend is, if you have a credit card, use it for spending on one thing. Use it for your travel to and from work or when you go and see your friends. The reason I say that is, when it comes to travel, you probably already have that money. You were going to go see your friends anyway. You're going to go to work anyway. That's money you've already got allocated physically in your account. So putting it on your credit card means that, a, you're able to spend, but B and most importantly, you're also able to pay it back in full on time, because you had that money sat there anyway. So it's a great way to build it up. One way that I was using my credit card in the beginning to build it up was to use it on my petrol. So I only put my petrol fill-ups on my credit card, why I had my money in my account for my petrol. So every time I just do it pay, pay, pay for petrol, and in the month I had that money, I just take it from my current account, throw it on my credit card and I'm paying it on time. Now, the reason why this helps is because lenders are able to see wow, okay, you can borrow money and pay it back on time, consistently, on a consistent basis. This is what you're doing. So if you do it on a monthly basis, over time you'll start to see your credit score rise.

Speaker 1: 16:31

Number two is to make sure you're under electoral role, aka registering to vote. Whether or not you vote though I do think it's very important to vote isn't the main factor here. What you want to do is make sure that you're on that register. The reason being is that lenders need to be able to verify that you are who you say you are. So if I say, hey, I'm Kia and I live in this place and I'm not in the electoral role, it's hard for them to double check and say, right, kia says she's Kia, but is she and does she live what she says? Once I'm on there, it's a register that they can check to verify that you are who you say you are, and quite often if you are someone who has a low credit score or no credit score, depending on how old you are, you'll find that putting yourself on the electoral roll will give you that little boost up and help your credit score. Number three is that Experian, I believe last year, released their own version of a credit score boost. That is only for your Experian credit score. I just want to say Just for your Experian credit score, not across the board, but depending on certain payments, they can factor that in and give you a couple of points boost on your credit score. So I definitely have a look and recommend checking that out if you want to give your Experian credit score a boost.

Speaker 1: 17:34

And then, lastly, the most interesting one is that you can use credit builders. I know right at the beginning I started with taking out credit card or having some sort of credit, but if you're someone who's like you know what I really don't want to get credit, or maybe I have poor credit, some struggle to actually apply for anything you can use a credit builder. Now there are different ones. The one that I personally use is Lockbox, and Lockbox was an interesting one. So the way lockbox works is that you pick an amount between 20 and, I believe, a hundred pounds. So let's just say for me, when I tried it out I've done it for two years I tried it out two times I picked 50 pounds. So what that means is that I'm committed to paying 50 pounds every single month for 12 months into my lockbox account. You're probably wondering so how does it build your credit? So 50 pounds times 12 is 600 pounds. So when you agree and I say right, I'm putting in 50 pounds for 12 months.

Speaker 1: 18:26

What lockbox does and what they report to the credit reference agency is that they've loaned you a 600 pound loan, which obviously you don't have a loan at all. But that's what is shown as on your credit score, on your credit file. At the beginning I grew 50 pounds. So every month that I put 50 pounds into my little box, I am paying off 50 pounds towards that imaginary loan that we've taken out with them. At the end of the 12 months I will have fully paid off my loan and it's a great way to show that you are actually responsible at paying back credit. At the end of that period, hopefully, you should see your credit score have a boost.

Speaker 1: 19:03

Now. The reason why I like this platform is because at the end of the 12 months, you haven't just paid 50 pounds into this like open abyss, which is absolutely nothing, and the money's gone nowhere. It is sat there for you. So it's a double whammy You're building your credit score, but you also are able to save money, which I absolutely love. So when I came to the end of my 12 months, that 600 pounds was there waiting for me. So that was just money that I saved for the past year that I can take out. The only caveat that I want to put here is that when you come to the end of the 12 months, £600 is set there for you that you can take out into your bank account.

Speaker 1: 19:26

However, lockbox work like many different platforms, where they work on affiliates. So at the end they'll offer you and say if you open up a savings account with one of their partners, then you can take out your full amount, and the reason being is they probably have a deal with one of these partners where they make money for every person who opens up an account, which makes sense. But if you choose not to so, for example, I chose not to I have my own. I have too many savings accounts to even name. But I said you know what? I don't want to open up another one. I could take it out into my own account, no-transcript there.

Speaker 1: 20:08

However, lockbox is the one that I personally tried and I really do love it. I've endorsed it. I've said that people should definitely have a look. If you want to look into a credit builder, so if you're not someone who really wants to focus on physically getting that credit, this credit builder is a great thing to have a look at. But these are the main ways that you can actually work to build out your credit score.

Speaker 1: 20:27

Now I want to round off here and say credit scores and credit files shouldn't be scary. I've spoken to people who think, yeah, no, it makes sense, credit file, credit score, I get it. And other people say you know what, I get it, but I'm scared to check mine. Don't be scared With anything in finance. And the thing that we always reiterate on the Penny to Pounds podcast is that you need to be proactive. Bearing your head in the sand might feel good for a little while, but eventually you're going to think, ah, actually I need to pull my head up and actually approach this head on.

Speaker 1: 20:55

So if your credit score isn't where you want it to be, that's okay. Everything can be worked on. Everything can be improved. You just need to make a plan to improve it. So whether that is getting yourself an electoral roll if you know you're not on there already, whether that is making a solid plan to pay back on time, or whether that is using the credit builder, whatever you choose to do to put your credit score is just putting that in place.

Speaker 1: 21:15

And also be mindful at how many applications you are making in a year. Ideally, you don't make more than two to three hard searches, so that's credit applications in a year. Because it looks like to lenders that you're desperate for credit. It looks like you really need credit, so you want to make one or two, and if you get declined this is so important Give it a three to six month gap before you apply again. But you, like the the people that you used to see sometimes in Apple, who would walk in, apply want to do it again there and then, and I'd recommend that they wait.

Speaker 1: 21:46

However, as part of my job, I wasn't allowed to tell them that they couldn't apply.

Speaker 1: 21:50

We had to actually let them apply again.

Speaker 1: 21:52

Even though it was against my best judgment, I had to follow the rules of my work at the time, but I can now freely say that if you apply for something, make an application and you get declined, give it that break.

Speaker 1: 22:02

Instead, go and log into the credit reference agency, see what your file has on there, see if there's something that you may have missed or if there's a reason that you can see on your rent as to why you may have been declined. If you have any issues or any discrepancies, make sure to reach out to your bank first and foremost if it's to do with payments or missed payments. Or reach out to your bank first and foremost if it's to do with payments or missed payments. Or reach out to the credit reference agency that has a discrepancy listed If it's something like you didn't take out a line of credit there or you didn't miss that payment there, have that conversation and you can raise that dispute with them to make sure that that is changed. Thank you so much, guys. I hope you enjoyed this episode. I will be back again next week with another episode.