How to improve your credit score

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Why is your credit score important?

Simply put, your credit score is a system used by lenders to help decide whether or not you will qualify for different forms of credit like loans, credit cards and mortgages.

Lenders will look at your credit score to work out what kind of borrower you are and how risky it would be to lend to you. They will then use this information to base their decision of whether or not to lend to you and how much.

There are three main credit reference agencies in the UK; Experian, Equifax and Callcredit. You can request to see your credit report at any time – some agencies may charge you a small fee to do so, alternatively there are free websites you can sign up to like Noddle and Clearscore who will give you a high level view of your credit report for free. You may find your score differs according to which website you use. This is because you don’t have one universal score – different agencies score you differently based on different behaviours.

What does having a good credit score mean?

Having a good credit score often means you’ll have more options when it comes to choosing which financial product you want and it can be more likely you’ll be accepted for the desirable and competitive products too. Importantly it will also affect the interest rate lenders offer you – you’ll find you’re more likely to be offered lower interest rates on your borrowing if you have a good credit score.

Every lender uses a different set of criteria for lending credit, so if you don’t get accepted by one lender it won’t mean a different lender won’t accept you for a similar product.

Even if you have a perfect credit score you aren’t guaranteed to be accepted for every product on the market – it just depends what sort of behaviours the lender favours to make a decision. For example, some lenders don’t like to lend to people with a perfect credit score because they view them as unprofitable (i.e. they always repay before the lender gets the chance to charge interest).

What does your credit report reveal about you?

Your credit report will show lenders lots of different information about you including:

  • Your credit score.

  • Any credit accounts you currently hold like credit cards, loans and mortgages and the combined credit limit – so the total amount of credit you currently have access to.

  • How much you currently owe on all your credit accounts.

  • Any repayments you’ve missed or that were late in the past 5-7 years.

  • Any applications you’ve made to borrow money that you weren’t accepted for.

  • Your previous and current addresses.

  • Your previous credit applications (soft searches like eligibility searches aren’t visible to lenders).

  • Any debt problems from the last 5-7 years like county court judgments and bankruptcies.

  • Whether or not you are on the electoral roll.

  • Your mobile phone accounts and your payment behaviour.

  • Your utility bill repayment behaviour.

    What affects your credit score:

  • Late or missed payments of your credit cards, loans and mortgages.

  • Late or missed payments to your gas and electricity providers.

  • Late or missed payments to your mobile phone contractor.

  • Whether or not you are on the electoral roll.

  • Missing or incorrect information.

  • Having the most up to date address details for you.

  • Having too much credit available to you.

  • Not having enough previous borrowing behaviour on your credit report might mean lenders are cautious about lending to you because they can’t tell what sort of borrower you are.

How to improve your credit score:

There are lots of different factors that affect your credit score and it may take a few months to improve it.

You can start by:

  • Use soft search before applying: Use an eligibility checker wherever possible to check your chances of acceptance before applying, doing this increases your chances of applying only for the products you know you’ll be accepted for and won’t.

  • Building up your credit history. If you’ve never borrowed any money before there is no way for lenders to know the type of borrower you are, so there is a chance you may get rejected. If this happens it isn’t the end of the world and you still have options. Credit building credit cards could help you to build a credit profile and become more likely to get accepted as long as you always settle your balance on time.

  • Repay on time: Always paying your loans, mortgage and credit cards on time will paint a positive picture of how you handle credit and can prove to lenders that you are a safe bet to lend to.

  • Stick to your limits: Try not to go over your credit card or overdraft limits because this will show up on your credit report and cause your score to drop.

  • Keep up to date: Make sure your current address is up to date and it matches on all of your accounts.

  • Remove old partners: Make sure you’re no longer financially linked with anyone you used to live with, this will link your credit files and could affect your score negatively if they don’t manage money as well you.

  • Avoid too many applications: Every time you apply for credit the application will  show on your credit report, which could work against you.

  • Register to vote: Being on the electoral register helps your lender to check your identity.

  • Check your credit: Close any old accounts that you no longer use – having access to unnecessary credit could affect whether lenders would be willing to lend to you – having access credit may put them off.

  • Pay your bills on time: Paying things like your credit card, mortgage, loans, utility bill and mobile phone bills on time may help your credit score – missing payments can negatively affect your score.

What to do when you get your credit report

It’s worth checking your credit report on a monthly basis to make sure the information the agencies have on you is correct and up to date. If you notice any errors on your file, contact the credit reference agency and ask them to amend the mistakes as these could affect your ability to get credit.
If you notice any applications for credit that you didn’t make, this could indicate you have been a victim of fraud –  it’s important you report this to your bank straight away.

How long does it take to improve your credit score?

Unfortunately there is no quick fix for a poor credit score. The length of time negative behaviour will stay on your credit record depends on what they were. Bankruptcies could stay on your report for up to 10 years and late payments for as long as 7 years.

We hope you have found this blog from useful! if you’d like to talk to us about buying a new home please call us at one of our developments or call in during opening hours.

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