Improve Your Credit Score
Understanding your UK credit rating
This can be tricky but knowing which factors can affect you will help when it comes to making decisions about finance.
Finance companies, whether they are loan companies, mobile phone shops or those that offer store cards, will look at certain factors to determine whether you are a good person to lend to. Credit ratings are a simple way of showing how much risk you are as a customer.
Factors which indicate risk could be missed payments, how often you’ve tried to get credit or already having too much debt. Credit ratings differ from company to company but the most common ones are Experian, Call Credit and Equifax so it is recommended to check your score with one of these.
Getting the basics right
This is easier said than done but it's really important. Make sure you:
- are registered on the electoral roll at your current address – this proves that you live there and many finance companies won’t offer a deal if you’re not on it,
- have a current account with a bank – this will show on your credit file but student accounts and saving accounts don’t.
Common issues and solutions
Anything extra that shows up on your credit score will either positively or negatively affect you. Those which can affect you in a negative way are below, along with possible solutions.
Issue: Late or missed payments will show as a ‘default’ on your credit score which will indicate that you haven’t been able to pay that particular bill.
Possible solution: If you think you’re going to miss a payment talk to the company you owe and see if they can reduce the payment for that month. Taking this step will mean you can still pay an amount towards what you owe and it will show as paid on your credit file.
Issue: Too many pay day loans could indicate that you are unable to live on your income each month.
Possible solution: If you’re struggling to pay money that you owe then it is probably wise not to apply for more finance. Talk to the companies that you owe money to and see if you can reduce your monthly outgoings.
Issue: Old accounts or unpaid bills that you may have forgotten about or have been taken out without your consent.
Possible solution: Make sure you’re aware of all old debts and accounts in your name – it’s not impossible for somebody, especially a family member or close friend, to open an account without your permission. If this happens any issues or missed payments will show on your credit file, not theirs. Make sure you’re aware of anything on your file by getting a free trial with a company such as Experian or Equifax.
Things that do not show on your credit file:
- household rent (private or council) – even if you pay all your rent on time it won’t show on your credit file so you need to prove you’re a good payer in another way,
- TV Licence – you can opt to pay this by Direct Debit but this won’t show on your credit file,
- insurance – whether it’s for your car, household goods or even mobile phone these won’t necessarily show up so don’t rely on them.
No matter how much you want to gain credit make sure that you stay away from:
- applying for finance more than 3 times in 3 months as this will trigger automatic declines for a lot of companies,
- joint accounts with someone who has a bad credit rating as this will affect your rating, too,
- lying to companies. They have a clear view of your credit file so when they ask if you’ve been in debt, bankrupt or received a court order, they’re checking to see if you’re trustworthy. Be as honest as possible by telling them the circumstances around your debt, you might be surprised with the results.
Image: an example of what a lender sees when looking at your credit file
Although it may appear scary taking control of your credit score will benefit you in a lot of different ways. No matter how good you believe you are with money unless you have a credit file that backs this up, you’ll find it difficult to get credit. Start small with a current account and mobile phone contract and, once these are at a good level apply for a credit card with a low limit and a high interest rate. Unfortunately, if you have bad credit you have to pay higher interest fees – this is a reflection of your risk.
For more information or advice on debt or money worries visit one of the below websites for free impartial information: