Ten tips on improving your credit rating and keeping it tuned
Boosting your credit score (apparently) is a bit like going on the pull, according to Martin Lewis on Moneysavingexpert.com.
While I can’t testify to what his social life (or success rate on the pull) was like when he was younger, the comparison is actually quite helpful (just don’t drop it into conversation to someone you might like).
So, you’re out on the pull. You put on your best clothes, slap on your best perfume and make sure your hair looks good. You are on show, ready to impress, and there’s a whole bevy of potential partners to impress.
Sadly it’s the same if you want to borrow money. If you don’t put the effort in and your creditworthiness isn’t sparkling, you might not get what you want.
Your creditworthiness shows how financially attractive you are.
"As each lender has its own bespoke criteria, think of it like a beauty parade. You need to make yourself as attractive as possible to lenders, in the hope they’ll pick you out of the line-up," Moneysavingexpert.com suggests.
How do I check my credit worthiness?
You need to check your credit report. It sounds boring, and it is, but it is simple and often considered the first major step in taking charge of your finances. You get a better picture of where you stand and where you can improve.
A credit report gives you a score. The higher the score the more likely it is a company will lend you money.
Knowing your score before you apply for a loan, which can be anything from a credit card to a mobile phone contract, is far better than discovering you have a bad credit rating at the point of applying.
To have your best shot at keeping your credit score in check, you need to be aware of what affects your score.
This score will be critical to the financial products and even jobs or rental opportunities you are able to take out throughout your life.
A poor score will put you at risk of having future applications for credit denied or not getting such a good deal in terms of the rate of interest you end up paying. A higher score suggests you are lower risk and more likely to be viewed favourably by lenders.
So who decides my credit score and how can you find out what mine is?
Credit rating agencies include Equifax, Experian and Callcredit and its Noddle service. They assign credit ratings, which are a judgment on your ability to pay back debt and the likelihood of you failing to meet repayment obligations.
In deciding how financially attractive you are, they will examine your credit history. Going over an overdraft limit or unpaid bills, which stay on your credit file for 6 years or more, will lower your score. Each credit reference agency has a different scoring system.
How can I keep my credit score looking good?
1 Get a credit report regularly
Checking this record of your borrowing history means you are aware of the information lenders will see when you apply for credit and have more of an idea of what you can apply for. It will help you work towards improving your credit report for future applications. You can also check it is up to date and accurate.
2 Make sure you’re on the Electoral Roll
Go to Gov.uk to register to vote or update your details. Your details will be processed by your council (about once a month) and passed on to credit reference agencies. Lenders use this information to check the information you have provided. If you’re not on the Electoral Roll, or the information doesn’t match, your application for credit could be delayed or declined.
3 Don’t miss loan or credit card repayments
Late or missed payments suggest to lenders you might fail to pay them on time as well, and as a result you could end up paying more for credit in future.
Text reminders of your balance, setting up direct debits and organising payments to go out after pay day can help you avoid missing payments. Over time, a late or missed payment on your report will have less of an impact.
4 Don’t apply for too many lines of credit, such as credit cards or loans
Applying for many credit cards or loans at once will be viewed as risky behaviour, and could negatively impact your score. It could be a sign of fraud or that you’re applying for more credit than you can afford. But how many is too many?
The UK average is one or two credit cards, according to uSwitch.com, and the ‘right amount of cards’ to have depends on your ability to meet repayments. Fight any error through a complaint, adding a notice of correction or if that fails going to the Financial Ombudsman.
5 Keep your income as regular as you can
If you’re income is irregular because you’re on a zero-hour contract or self-employed, it is not as easy to show you are a reliable borrower. A permanent job is viewed more favourably. If you’re self-employed, workyourway.co.uk recommends keeping your accounts up to date, as lenders usually want to see 2-3 years’ worth of accounts and says incorporating your business will enable you to pay yourself a salary.
6 Move house less often
Moving house frequently is also viewed as risky. A house move is costly and increases the chance of missed payments. If it takes a while for your details to be updated on the Electoral Roll, this could delay applications for credit.
But you can reduce the impact on your credit score. If you’re moving house, re-direct your bills and register on the Electoral Roll as soon as possible. If you move regularly, you could use your parents’ address for financial accounts.
7 Close joint accounts with a bad credit record
Just living with someone, or being married to them, will not affect your credit rating, but a joint bank account will, the Money Advice Service says. Check if former flatmates or partners appear on your file. If you split with a partner or someone else you share an account with has run up debts, you can request for financial links to be removed from your report once you have closed or separated accounts.
8 Think carefully before taking out a new phone, gas or electricity contract
If you get a phone on contract it is effectively on credit as you are paying for it later, so usually the network provider will check your credit history. ClearScore says you can have an unlimited number of ‘soft searches’ on your credit report without it impacting your score, but an application for a utility account, including a mobile phone, usually involves a ‘hard search’, which will have an impact.
9 Consider closing accounts you don’t use
Keeping cards you don’t use open is a fraud risk and could be viewed unfavourably as you might decide to suddenly spend the available credit. But other lenders could be interested in your credit utilisation. Moneysavingexpert explains ‘this is a fancy way of saying how much of the credit available to you are you using’ and suggests aiming for 25% or less and not all on one card.
10 Get a 0% spending credit card or an account with a 0% overdraft.
You can use it for some of your spending, and pay off in full every month. For students and younger people, the challenge can be to build a credit history. Paying bills on time and managing credit responsibly will improve your score over time. Sites like money.co.uk and uSwitch.com list credit building credit cards, cards that could help improve your credit rating if you make the repayments on time each month.