5 Top Tips to Improve your Credit Score
1 CHECK ALL YOUR CREDIT FILES
You have 3 credit files. One with Experian, Equifax and Call Credit. You can download a copy of your statutory credit report at www.equifax.co.uk, www.experian.co.uk and www.transunion.co.uk for free.
Check each credit file to ensure your personal data is accurate –
Make sure your name, and any names you’ve been known by (such as your maiden name) is correctly spelt
Ensure your correct date of birth is shown
Check that your address history is accurate. I have seen many a file with an address on it that the individual has never lived at.
Check that each account shown is yours.
Check that the data reported, i.e. payments made on time or missed/late payments, is correct.
If your name, date of birth or address history is incorrect, contact the Credit Reference Agency (CRA), or all 3 of them if it is wrong on all of them, and ask them to update the file.
If there are accounts that do not belong to you showing on your file, contact the CRA for advice on how to remove them. You may have to contact the lender or institution direct to have the file amended/removed.
If the accounts are correct, but the payment history is not, contact the credit provider direct and ask them to update their records with all 3 CRAs.
2 ELECTORAL ROLL
Check your credit files to make sure that you are showing as being on the electoral roll at your current address. If not, contact your local council and register. You can do this over the phone or online at www.aboutmyvote.co.uk If you were on the electoral roll at previous addresses, and this isn’t showing, contact the council and ask them to amend their records with all 3 Credit Reference Agencies.
You should do this as a priority as councils can take up to 3 months to update the Credit Reference Agencies.
Being on the electoral roll is more than just allowing you to vote in local and general elections. In the digital age it used used by lenders and institutions to check and verify your identity. Register even if you are not a UK citizen and can’t vote in UK elections, it is not only law but a vital part of your credit rating.
I wrote briefly about your credit score HERE. All lenders have their own scoring methods, and apportion importance to different factors on your credit file, in line with their lending criteria. It’s like passing a test, you need to get a certain amount of points to pass their credit score to allow them to lend to you, or to provide you with their service.
One item they all have in common is being able to verify your identity via the electoral roll, and it is worth a few points. As an example – a lender could have a scoring system out of 1000, and being on the electoral roll could be worth 200 points. It’s that important.
If all other data on your credit file is positive, it could be the difference between being accepted or declined for a mortgage, loan/credit card or other service.
Budget and prioritise.
Make a list of all of your outgoings. Make sure you check your bank statement thoroughly and include all the direct debits you have set up. It’s also not a bad idea to do some housekeeping, and cancel any old direct debit instructions that are no longer relevant.
If you are paid monthly, make sure all of your credit commitments and contractual living expenses are paid immediately after pay day by direct debit. Change your direct debits if they are not all set up to go out straight away. If you are paying some bills manually each month, contact the company to set up payment by direct debit or set up a standing order. Even the most organised person can get sidetracked and forget a bill due, especially if they are sick or go on holiday.
Now what’s left in your account after your bills are paid is what you have to spend on food, petrol etc. and other discretionary spending, and you can be safe in the knowledge that you won’t bounce a direct debit (and incur a charge by your bank), or forget to pay a bill on time which would result in negative record on your credit file.
If you want to be super organised, you can now divide your discretionary spending into how ever many weeks are left till pay day, and make sure you don’t overspend – leaving yourself short of cash before you are next due to be paid.
If you are paid weekly, it’s best to stagger your direct debits over the month after each pay day, rather than have them all come out of your account on the same day – unless you have built up a reserve of funds to allow you to pay all your bills at the same time, and have some left over for day to day living costs until next pay day.
Option 1 – If your bills are £1000 per month, work out roughly £250 worth of direct debits to come out of your account each week and change the dates of the direct debits/standing orders with the lender or provider.
Option 2 – Have your rent/mortgage payment debited one week, and split all your other bills into 3 and set up weekly direct debits/standing orders for them so that they are staggered over the month. As an example, if after your rent/mortgage payment the rest of your bills come to £600, set up roughly £200 direct debits/standing orders per week.
This should ensure that you never miss a payment or have a direct debit rejected, and that you have enough money for day to day living expenses. Bonus – it’ll mean that you have consistency and aren’t either living in feast or famine.
4 NOT ALL CREDIT IS BAD CREDIT
This really is a topic worthy of its own post. I’ll get working on that!
As well as being on the electoral roll, most lenders – mortgage in particular – like to see at least 2 active accounts on your credit file. This could be made up of any of the following –
Mobile phone contract
TV satellite or cable (Sky)
Utilities – gas & electric and water
Loans or HP agreements
If you don’t have a personal current account, consider applying for one as a priority and start having your salary/wages paid into your own account.
If you’ve got a pay as you go phone, consider doing a check to see if it would be cheaper and better for you to change to a contract, especially if you use your phone a lot. It’s easy to lose sight of how much you’re actually topping up each month if you top up weekly.
One way to build your credit history and thereby your credit score, is to show that you are able to pay back your credit commitments, by having a credit card. First make sure you’re on the electoral roll and have had a bank account for a minimum of 6 months, and then you can apply for a credit card.
All of the credit reference agencies will allow you to check who is likely to give you a credit card, without impacting on your credit score (called a soft footprint), so do use the facility and apply with a lender who is likely to accept you.
5 AVOID PAY DAY LOANS, DEFAULTS AND CCJs LIKE THE PLAGUE
PAY DAY LOANS
For mortgages in particular, pay day loans can have a heavy impact on mortgage lending. I’ve noticed many lenders have changed their lending criteria recently to show more scrutiny to anyone who has taken out a pay day loan in the last 12, sometimes even 24 months. It can be seen as evidence to suggest you are not able to get to the end of the month on your income, and as such a big risk that you will not be able to pay your mortgage.
Some lenders would even accept a default or a CCJ on your credit file, but they may decline the mortgage if there are recent pay day loans.
If you have taken out pay day loans in the past, ensure they are fully repaid and try no to use them any further. Follow the steps above to set up a budget and prioritise your money so that you are not left short of cash in the run up to pay day.
DEFAULTS AND CCJs
Once you have a CCJ or a Default it will stay on your credit file for 6 years, from the date it was registered. There’s not much you can do if you already have them (unless the lender has made a mistake), other than to ensure they are satisfied (paid off in full) as soon as possible. The good news is that as time passes they begin to have less impact on your chances of obtaining a mortgage or other credit, if you are now looking after your credit history and paying your bills on time.
You can’t undo the blip, but you can start to make things better moving forward by taking control of your finances, and eventually the data will stop showing on your credit file and you will be super credit worthy!
If you are experiencing financial difficulty and are unable to pay your commitments, it is vital to seek help immediately. Don’t bury your head in the sand and ignore the letters. All credit providers have to treat those facing financial hardship in a sympathetic manner, and they have to give you the opportunity to bring your account up to date, even if it means setting up an arrangement to pay the arrears back over a period of time.
The only way they can register your account as defaulted, and then take you to court to have a judgement issued, is if you stop communicating with them and don’t make any effort to come to an arrangement.
A missed payment or even arrears or an “arrangement to pay” is better than a default or CCJ on your credit file. So don’t let it get to that stage. If you feel unable to discuss the matter with the lender you can ask for help from organisations such as Citizen’s Advice Bureau, who should be able to negotiate with them on your behalf.
BONUS – GET ADVICE IF YOU ARE LOOKING TO GET A MORTGAGE
I’m not saying this because I’m a mortgage broker and make my living off giving advice and arranging mortgages. I genuinely believe that it is in your best interest to seek advice and discuss your credit file when trying to obtain a mortgage. Even if you have an excellent credit rating, but if you have any kind of negative data on your credit file, from 1 missed payment in 6 years to defaults and CCJs.
I am often contacted by clients who have already had a mortgage refused due to a credit file entry, and at this stage there will more than likely be a search registered by the lender on their credit file. Too many searches by lenders on your credit file is another factor that is taken into consideration in credit scoring algorithms.
As a mortgage broker I am experienced in placing mortgages with the right lender, and I will analyse the data on your credit file and match you to a lender who is likely to accept, you based on their criteria.
I have, in the past, advised clients to wait just 3 months before applying for a mortgage, because they had historical adverse credit which would then be longer than 3 years old and therefore would be ignored by a high street lender and they would pass their credit score – this despite the fact that I could have arranged a mortgage immediately for them, albeit at a much higher interest rate with an adverse lender. This saved them quite a bit of money on their monthly repayments in the end.
Most mortgage brokers, myself included, offer free no obligation appointments – face to face or over the phone. It’s so worthwhile to make contact. It won’t cost you anything and I’ll say it again … get the advice!
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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