Practical Steps for Improving your credit score
Having a good credit score is vital as it can affect your ability to borrow money or access various products such as credit cards or loans.
Prior to applying for a product you have the ability and right to check your score for free and if you aren’t happy with it, there are things you can do to improve it.
What is a credit score?
A persons credit score is generated from information held in your credit report.
The exact number of your credit score tends to differ between lenders, depending on the criteria used in assessing you as a potential customer.
The information held on your credit file and your credit application form is typically used to decide:
how much interest to charge you.
whether to lend to you
how much to let you borrow
Typically the most recent information on your credit file will have the most impact, as lenders will be most interested in your current financial situation. However, its important to bear in mind that information from the last six years will still be on your record.
Its important to remember and factor in that if your credit report shows a few missed payments, you might be charged higher interest by lenders or might not be eligible for some loans.
This is because lenders believe that they will be taking a higher risk when lending to you.
To make sure everything on your record is up to date, not contain any mistakes or fraudulent activity and correct its worth checking your report on a regular basis.
checking your credit score?
There are three main credit scoring agencies in the UK: Equifax, Experian, Callcredit.
You can request full details of your credit file for free or simply get your score online, which is also free.
Each charge to access their services, although it’s possible to access for free through their partner sites.
What information is in a credit report?
Each agency holds slightly different information about you, so it’s worth checking all three for a more accurate picture.
Generally speaking, your file will include:
- name, address and date of birth
- some search footprints on your file, such as credit applications
- financial links to other people – for example, a joint loan or bank account
- any late/missed payments or defaults
- how much money you owe to lenders
- any County Court Judgments (CCJs) against you that are not paid in full within one month of receiving the notice
- if you’re on the electoral register at your current address
- if you have been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).
What is a good credit score?
All lenders have their own different criteria and selections for rating credit scores.
Not surprisingly, if you have a good score with one of the main credit reporting agencies, it’s more than likely you’ll have a good credit score with your lender.
A good credit score with:
- Callcredit is scoring 4 out of 5
- Equifax is scoring over 420 out of 700
- Experian is scoring over 880 out of 999.
A good credit score doesn’t guarantee that you’ll be approved for credit or offered the lowest interest rates.
How long will it take to improve my credit score?
In general, credit history is built up slowly over time as you increase the number of on-time payments you make.
The longer the bill goes unpaid, the greater the likely impact on your credit score. Keep a close eye on your credit score to help spot issues.
Most negative marks will remain on your file for at least six years. After that time, everything is deleted from your file, including missed payments, defaults, bankruptcy and CCJs.
However, there are some quick improvements in the next section that you can make today to begin raising your credit rating.
improving your credit rating and credit score?
If you have a low credit rating, there are several things you can do to start improving your score today:
- Register on the electoral roll:if your name’s not on there, you’ll find it much harder to get credit.
- Check for mistakes on your file:even having just a slightly wrong address can have an impact on your score. So, make sure you check all the details and report any incorrect information immediately.
- Pay your bills on time:paying on time a phone landline or internet contract is a great way to prove to lenders that you’re capable of managing finances effectively.
- County Court Judgements (CCJs):receiving any court judgements for debt will have a serious impact on your credit score. If you’re having problems keeping up with payments, find free debt advice online.
- High levels of existing debt:ideally you should eliminate any outstanding debt before applying for new credit. This is because banks, building societies and credit card companies might be hesitant about lending you more if you already have a lot of existing debt.
- Moving home a lot:lenders feel more comfortable if they see evidence that you have lived at one address for a considerable period. Be sure to bear this in mind.
If you have a poor credit history, you might want to consider a credit-builder credit card.
These are cards designed for people with little credit history, or who have a bad credit history. The credit limits are often low and the interest rates high. This reflects the level of trust your credit file gives lenders.
By using these cards and paying off the bills each month, you can prove you’re creditworthy, increase your credit score, and apply for other cards and loans when your credit rating improves.
Be aware that the interest rates charged are much higher than standard credit cards though.
Typically, you’ll be paying over 30% in interest a year, which is another reason to try to pay off any balance in full each month.
Otherwise, you might end up in debt that you struggle to get out of which could harm your credit rating even further.
Avoid expensive credit repair companies
You might see adverts from firms that claim to repair your credit rating.
Most simply advise you on how to obtain your credit file and improve your credit rating – but you don’t need to pay for that, you can do it yourself.
Some might claim that they can do things that – legally – they can’t, or even encourage you to lie to the credit reference agencies.
Don’t even consider using these firms.
Reporting and fixing any mistakes on your file
If you do spot any mistakes, challenge them by reporting them to the credit reference agency.
They have 28 days to remove the information or tell you why they don’t agree with you.
During that time the ‘mistake’ will be marked as ‘disputed’ and lenders aren’t allowed to rely on it when assessing your credit rating.
It’s also best to speak directly with the credit provider you believe is for the incorrect entry.
Credit reference agencies rely on information provided by lenders and often the lender is in the best position to resolve this.
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