Your credit score is a deal-breaker for mortgage providers and banks. Boosting that number can literally change your life.
What is a Credit Score?
Banks and lenders basically don a white coat and stick a thermometer in your finances while you sweat on the results.
Your credit score is calculated from financial information contained in your credit report (or credit file). Having a low score means you might not be able to borrow at all and if you do, you will probably pay higher interest rates.
How to Get Your Credit Score
Before having a go at improving your score, you first need to find out what it currently is. There are three main credit reference agencies (CRAs) in the UK, which all hold your credit report:
These CRAs all charge a fee of around £2 for your Statutory Credit Report and you can access your file online.
What’s in your Credit Report?
In your Statutory Credit Report you will find:
- A list of all your credit accounts – including information about any loans, overdrafts or any other credit agreements you currently hold or have held in the past. The report will also detail any missed or late payments. This does not include Council Tax arrears.
- Your personal information (not your salary) and your current and previous addresses.
- Details of anyone who is financially linked to you.
- Details of any County Court Judgements (CCJs), house repossessions, bankruptcies or debt repayment arrangements (such as an IVA).
Any missed payments, arrears, CCJs etc. will stay on your file for six years.
What’s a Good Credit Score?
The three credit reference agencies all use different systems. Here is an example of a good score at all three:
- Experian: Over 880 out of 999
- Equifax: Over 420 out of 700
- Callcredit: 4 out of 5
Once you have your score, you can join Money Savings Expert’s Credit Club to find out your chances of getting credit and how much interest you might pay.
How a Low Score Can Make Life Difficult
You score determines if and how much you can borrow and how much interest the lender is likely to charge you.
If you have made some poor financial decisions, been refused credit or have fallen behind with payments in the past, this can result in a low score which can really hinder your financial progress, especially if you need a mortgage.
If you want to borrow money for a mortgage, loan or credit card, the lender can use the score to either refuse credit or charge you a higher rate of interest.
Many find this counter-intuitive to charge poorer people more interest than wealthier borrowers, but the logic for lenders goes that a low credit score = high risk.
How to Improve Your Credit Score
It’s a really good idea to check your score regularly and be aware of how you are ‘seen’ by lenders. If you have a low or medium score (or no score!), read on for our 10 tips on how to improve your credit score.
1. Register Your Vote
By simply registering to vote, the CRA can check that you are who you say you are. Plus, you get to have your voice heard by voting! Contact your local Registration Office for more information.
2. Check for Mistakes
One wrong address can impact your score. Go through your credit file with a fine-toothed comb and report any mistakes immediately.
3. Get Started On Credit!
Having no credit score can be as bad as having a low score as you are an unknown quantity to the lender.
We know it sounds a crazy but if this is you, you need to ‘build’ your credit. How? No, don’t go and take out ten credit cards today…Instead, you could take out a credit-builder pre-paid card where you borrow a small amount and PAY IT OFF IN FULL every month.
We’ll say it again: PAY IT OFF IN FULL EVERY MONTH. This will build up a picture of you being a reliable re-payer.
This also works for those with a low score, getting credit and showing that you can pay it off every month will indicate to lenders that you are a ‘reformed character!’
In any case, we strongly recommend you destroy your card the first month you are unable to pay the balance in full.
Check out some cards for people with no credit score or a low credit score at Money Saving Expert.
4. Stay Put
If you keep moving around, lenders will be suspicious that you’re on the run from a previous debt or can’t hold a job down. If possible, stay at your address for as long as you are able while you improve your credit score.
5. Clear Debt
One of the more obvious ways of improving your credit score. If you clear your existing debt before applying for new credit, you are more likely to be looked upon favourably by lenders.
If you’re having problems with debt check out our Debt Management Series for lots of help and advice.
6. Ditch Old Plastic
If you have lots of credit cards you don’t use with no balance on them, close the accounts and cut the cards in half.
If you’re not using these cards it will show lenders that you don’t need to borrow. It’ll also clear your report of things you don’t use.
7. Be A Good Payer
Pay all your bills on time and in full.
This is the most obvious tip but showing that you are reliable and able to pay your bills and existing credit on time over a long period will bump up your score in the long run.
8. Stop Applying
Every application for credit is logged on your report. Applying for lots of different credit cards and loans can make you seem desperate, which in turn makes lenders approach you with a long barge-pole.
Use online eligibility calculators like this one to check what you can get before you apply for credit. These searches won’t affect your credit score.
9. Stay Away from ATMs
Don’t draw cash from any of your credit cards, lenders do not like this at all. Unless you’re abroad, they don’t mind that.
10. Give Your Score a Check-Up
Check your score regularly so you are aware of how you are progressing and so you can check for any mistakes.
Over to you
Have you managed to improve your credit card score? Or are you currently suffering with a low score? Share with us here, we’d love to hear from you!
This post is in collaboration with HSBC.
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