Firstly, why bother?
For a lot of people the availability of credit is important. It helps buy homes, buy cars to help your family travel and in lots of cases provide a way to earn money or points whilst spending via credit cards. I’m not advocating having loads of credit but if you need to apply for credit, having a strong credit score is important.
If you’ve ever been declined for credit it’s pretty embarrassing! So reading this will help you improve your credit score and increase your confidence with what to do and when.
How does a credit score work?
The interesting thing is that each company calculates your credit score differently. This is based on how much risk they are prepared to accept and how much profit they can make from you! They will look at your credit history based on their own analysis and give you a score. So the better your credit score, the more likely you are to get accepted and also for some products like unsecured loans, get preferential interest rates and terms. This is because a credit score is like predicting the future. How likely you are to repay the amount borrowed. A high credit score would indicate you are a ‘safe bet.’
How is your credit score calculated?
It’s a combination of a few different things:
- What’s on your credit file
Your credit history with the company you’re applying to
What’s on the application form
Your credit score also takes into account things like:
- The amount of existing credit available, how much of your credit you’re using
Your payment history,
How you use your bank account
Your payment history for utility bills.
Lenders use credit reports to confirm whether you are likely to repay the debt so don’t owe more than you can already afford to repay. Each item on your credit file and application form is given a value and then your credit score is calculated. The higher your score, the better the chance you will be accepted.
A great credit score will in turn put money in your back pocket.
Find out what your current credit rating actually is. There are a number of companies you can use to do this. Most either offer a free trial or give access free of charge.
Money Saving Credit Club
According to the Money Saving Expert Credit Club, mine is looking pretty healthy right now. But if I wanted to apply for a remortgage to review my mortgage rates or change my credit card provider it tells me instantly my chances of who is likely (no guarantee) to say yes! I also completed a mini ‘wallet workout’ with a computer bot and after answering a few simple questions in under 30 seconds, it recommended to me that an AMEX Platinum everyday credit card would be a good choice for me and I had a 95% chance of being accepted. I am not looking at applying for a new card right now not what a nifty tool from Martin Lewis’ team! It is run in association with Experian.
Clearscore for me is another really simple way to check the healthiness of your credit rating. It is powered by Equifax, although are shortly to be acquired by Experian. Firstly, it has an app which I love because I live by my iPhone! It was easy to enter my personal details and seemed very personal. It gives me an overview of:
- Average credit score in my area
- My own personal score
- The UK average
I can see month by month, what has changed on my credit file (Which is great to help prevent fraud) and gives me a list of things I am doing well and things to work on!
It has a nifty ‘To do List” with some simple personalised bite sized tasks to complete with links to some great articles to read to improve my score.
How did it help me?
To my surprise, it highlighted to me a few accounts I had forgotten about! I opened a Santander current account in 2001 and it was sitting there with no money and no activity. I don’t like to keep dormant current accounts open so I contacted Santander (it gave me which previous address it was stored under and the last few digits of the account number).
My Top 15 Tips
Get registered on the voters roll. Lenders check the electoral roll for evidence of fraud by making sure you live where you say you do. If you’re not eligible to vote in the UK sending the 3 main credit reference agencies (Experian, Equifax and Call Credit) certified copies of your proof of residency and ask them to put a note on your file.
Make monthly payments on time, even if it’s the minimum payment.
Pay bills by direct debit to make sure you pay in time each month. Missed late payments stay on your credit file for up to 6 years. If the late payment was beyond your control (direct debit wasn’t set up in time) as long as the payment is made promptly and you contact the provider, your credit file can be updated.
Check who you are ‘financially linked’ with. If you’ve applied for credit with someone in the past, this will show up on your credit report. If they have poor credit score then it may impact yours. Contact the credit reference agencies to tell them if you no longer hold the product. When a relationship splits, split up with them financially as well!
Stay within your available credit limits. It may sound obvious but going over your credit limit will show on your credit file and have a negative impact on your credit score.
Reduce the amount of debt owed over time
Pay off debt rather than transferring it to another provider
Check for mistakes on your credit file. This includes old accounts registered at old addresses. This can cause problems so make sure you change addresses on accounts as quickly as you can and close down any ones you don’t use.
Check for fraudulent activity. Someone who has committed fraud and used your address for example could impact your credit score, even though it wasn’t anything to do with you. If you’re worried about potential fraud showing on your credit file, you can check on the CIFAS website. It costs £10 to request a copy of any CIFAS files held on you. If you find something the first step is to speak to the company that logged the CIFAS record against you.
Don’t apply for lots of credit in a short space of time. Space out your credit applications as the more applications you make in a short space of time, the more likely you are to get declined.
Close down any unused credit, store or debit cards. Lenders look at the amount of credit you have available as well as how much you owe. Contact the provider and close down the accounts. They’ll want to keep you as a customer so be prepared!
Build your credit history with a credit card. If you’ve never had credit, a lender will find it difficult to decide whether to lend to you. It might be worth applying for a credit building credit card making a couple of purchases and paying it off in full each month. This shows them that you can manage credit responsibly.
Minimise applications by using eligibility calculators. You only really find out if you’ll get credit when a credit score is done. Limiting credit scores is important as high volumes of searches can impact your score. But you can find out who is most likely to give you credit by using eligibility calculators that don’t leave a footprint on your file.
Make sure your rent boosts your credit score. If you pay your rent on time. If so you can sign up to the free rental exchange scheme and by paying your rent through the scheme, this can improve your credit rating. Find out more details at creditladder.co.uk
Get your name on household bills – Bills such as energy bills or mobile phone contracts demonstrate your ability to pay bills so get on them!