Don’t be scared of the score: facing your credit rating
21 Jul 2016 | COMMENTS: 0 | Author: Charlotte Rasbuary | General
If, like me, you’ve been turned down for a credit card even when you thought your finances were stable, you can be left wondering why. What’s affected my credit score and how can I control it? The idea of managing your credit score can be daunting, but it really doesn’t have to be scary.
What’s my credit score?
A good score makes it easier to get credit. Even so, in the UK, there’s no such thing as a universal credit score. Whether you get accepted to receive credit will vary between lenders as each has their own scoring system.
The higher the lender scores you, the lower risk you’re considered to be, and the more likely you are to get approved.
The data you’re ‘scored’ on is usually your job, income and reason for application, as well as your past credit history. If you’re already a customer of a lender, your history with them will usually be taken into account.
Why do I need a good score?
So why is it important to have access to credit? Securing a mortgage is probably the biggest thing that springs to mind. Other credit products can include credit cards, mobile phone contracts and car finance. But you might even get a credit check if you want to rent a property. While credit isn’t necessary for everybody, it can be extremely important.
Building your credit score
If you’ve never used credit products before, you may still struggle to be approved for credit products. You have no credit history for lenders to judge your reliability to make repayments. There are three simple things you can do to kick start your credit file:
– Register to vote
It’s important to be on the electoral roll as this verifies your name and address. You can register any time at gov.uk.
– Get a credit card
There are some credit cards available for people with poor credit history. Unfortunately they usually don’t offer much available credit, and interest rates can be high. If you are approved for a credit card with a relatively small credit limit you can build your score up responsibly. Don’t spend outside your means and set up a direct debit to pay the card off in full each month. This eliminates the risk of paying interest and building up debt.
– Avoid payday loans
Some mortgage underwriters have openly said they automatically reject anyone who has a payday loan as they’re seen as indicators of bad money management.
Maintaining your score
If you’ve got a strong score already, here’s how to maintain it:
– Never miss minimum repayments
Doing this once or twice can cause a problem that may last years. You could receive a County Court Judgement (CCJ) ordering you to repay money owed. This would stay on your credit file for years, and lenders usually avoid this.
– Reduce available credit
If you have many unused lines of credit, you should cancel some. Just like having too much debt, having too much available credit can also make lenders nervous. Why do you need more? In contrast, long standing bank accounts with good credit histories are best left open. This shows you have a good relationship with the bank. And large, agreed overdrafts show the bank trust you.
– Don’t withdraw cash on credit cards
This highlights to lenders that you can’t manage your money well.
Improving your score
If you’ve got a poor rating, don’t panic! You’ve got some work to do before you should apply for credit. But here’s where you should start:
– Don’t let your credit history get any ‘busier’
Applying for several credit products within a short space of time reduces your chances of being approved. It implies to lenders that you’ve either been denied for several products, or you have several open credit lines already. Plan ahead – if you know you want to apply for a mortgage or new car finance in 6 months’ time, try to avoid applying for credit in the meantime.
– Ensure all your details on current credit products are consistent
You’re more likely to be approved if your personal information is consistent. If you’ve applied for credit using various addresses and places of employment you’ll look unreliable to lenders.
– Rectify any errors on your file
Mistakes can happen. If you find bad credit has been wrongly recorded to your file, don’t be afraid to address the lender responsible to get it removed. If the lender doesn’t have a record of the error, take this up with the credit reference agency you’ve used.
How do I find my score?
You can check your score with one of the three main credit checkers, Equifax, Experian and Call credit. The higher the score, the better your chance of being approved.
Though this score shouldn’t be taken as gospel, it’s still a strong indication of how ‘credit worthy’ you are.
There’s also free credit check services, such as Noddle. Though lenders won’t search these, they’re a useful tool to get an idea of your rating.
You might even find ‘free eligibility calculators’ for certain products. These calculators will generate your odds of being accepted, and create a ‘soft search’, meaning you won’t mark your credit file.
There’s a lot of information to take into account when making financial decisions. Though we’ve established there’s no universally recognised credit score, all credit checkers agree on what makes positive and negative credit behaviour.
Lenders aren’t trying to catch you out. They need to make sure repayments will be made, for your benefit as well as theirs. Maintain good habits and you can’t go far wrong.
If you need personal financial advice, based on your individual circumstances, requirements and financial goals, it’s best to seek formal advice. This can be obtained by connecting with a financial advisor. We can connect you with an FA best suited to your circumstances. Click here to get connected to an advisor.