One of the biggest barriers to getting our finances in order is a poor credit rating – and we often don’t even know anything about it. If you find yourself rejected for credit – whether it’s for something as simple as a mobile phone contract or as big as a mortgage – but not sure why, then it’s time to take steps to improve your credit score.
Ensuring your records are accurate and the best they can be is worth investing a bit of time in, because it’s your credit score that lenders use to determine whether you are responsible enough to borrow. A poor credit score can impact various aspects of your finances, including monthly car insurance and even your banking. These days financial organisations run credit checks even if you’re opening a straightforward savings account or cash ISA.
Landlords, energy suppliers and even some employers (when assessing job applicants) increasingly use the information it provides. We’ve put together some top tips to help you improve your credit score so that you can stay on track with your finances.
Get on the electoral register
If your name isn’t on the electoral register, you’re unlikely to be considered for any kind of credit. This is one of the simplest steps you can take to improve a credit score pretty much immediately, yet surprisingly, millions of people are not registered.
Make sure you are registered on the electoral roll at your home address and then also make sure your addresses for bank accounts, phone bills and other contracts all match. If you are ineligible to vote in the UK, send the credit rating agencies proof of your residency (such as a utility bill or UK driving licence) and ask them to attach a note to your file to verify this.
Get a landline
With mobile phones now the norm, people often decide to ditch the landline. But if you have a poor credit score, then a landline is worth getting. It shows lenders that you’re stable and it can also help with the security checks carried out when you apply for financial products. When applying for credit, use your landline on the forms.
Check your credit file
If you haven’t checked your credit file, you can do this for free. To get a full picture of your finances, check your file with all three UK credit reference agencies – Equifax, Experian and Callcredit. The information held between them may differ and you should check it regularly.
Checking them will also help you identify any errors that could be working against you (such as incorrect personal details or inaccurate bill payment records), as well as alert you to fraudulent activity. You can check your score for free with services including Experian, Clearscore (which covers reports from Equifax) and Credit Karma (which covers reports from Callcredit). If you find a mistake, first contact the provider or lender responsible for the error.
If they agree it’s an error, it’s up to them to correct it with the credit rating agency and if that doesn’t get you anywhere, speak directly to the agency.
Cancel unused cards
If you’ve got a credit or a store card that you’re not using, cancel it. Too much credit can be seen as bad credit, even when it’s not being used. However, if you have been with a bank for a long time and have a good credit history, these would be best left open as they can help ratings.
Clear your debts
If you have debts, then try and clear what you can. If you have savings, use that to pay off debt — you would be better off clearing expensive debts with your savings than keeping it in low interest rate savings accounts.
Build a credit history
If you’ve never had a credit card then it’s a good idea to get one, just to build a credit history. Having some credit shows lenders that they can trust you as a borrower. If you’ve never had any credit, then they have no way of knowing.
Get a credit card and buy something small with it every month, even if it’s just your travel to work, in order to create a credit history. Also make sure you pay off your credit card in full every month in order to avoid charges, ideally by setting up a direct debit.
Don’t apply for too much credit
Don’t make too many applications, such as phone, insurance and store cards, in a short space of time. These will show up on your file and work against you, not least because they make you look desperate for money.
If you’re moving house, make any credit applications before you move as your credit history will not match your new address and could therefore lead to rejection.
Joint finances
If you have joint finances with someone, maybe a joint account or a credit card, it’s vital that you both maintain a good credit score. If this is not possible, keep your finances separate. Make sure that your credit history is separated from any ex-partners. You want to make sure the information held by credit agencies is an accurate reflection of your current circumstances.
Use an eligibility checker
If you are applying for credit but not sure you will pass the requirements, use an eligibility checker for a soft search. This doesn’t show up your file. It allows providers to see some information about you to decide if you are likely to be accepted. Many credit companies and financial services companies provide this type of check.
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