The idea of a universal credit score is misplaced. Every lender in the UK will have their own varying criteria for new business. However, all will be interested in knowing just how credit-worthy you are and part of establishing this is by undertaking a check of your ‘credit file’. These individual profiles are built up on each of us over time by credit agencies such as Experian, Call Credit & Equifax. The agencies harvest information that is either publicly available or provided by third parties (such as utilities companies and other lenders.
Nowadays, a good credit rating can help you obtain favourable terms for a mortgage, insurance and even mobile phone contracts so it’s worth making sure the information held on you is as accurate and beneficial to you as possible.
A credit score is made up of lots of information. There is also a lot of information not automatically held by ratings agencies. What’s held is weighted and judged based upon the facts. The idea being that a predictable model of your behaviour can be created in order to evaluate your credit-worthiness.
For example, being late to pay your gas bill is likely to be information shared by the utility company with the ratings agencies. A County Court Judgement for unpaid debt likewise. On the other hand, if you religiously pay your personal loan every month and whilst you borrow on a credit card, you make regular monthly payments in accordance with the terms of your agreement, this will help build an attractive profile and improve your ‘credit score’.
A good way to start the process of improving your credit file is to find out what is held on it now. You can apply to Experian or one or all of the other agencies to see what information is held by them. Check it. If you find irregularities or incorrect or missing information you might want to get this rectified.
In general though, the best ways to improve your credit score are;
- Check to make sure you are registered correctly on the electoral roll and that former address details are accurate
- Make sure your address details are up-to-date with your bank, credit card company, etc
- If you live at a property where someone else has incurred bad debt this may have unfairly had a detrimental effect on your file so check and clarify if necessary.
- Make sure no bad debts are incorrectly attributed to you.
- Set up Direct Debits and Standing Orders so that regular bills are not forgotten and are paid promptly. In particular, mortgage payments & utilities should be prioritised as these providers usually share this information with credit agencies.
- If you are likely to dip into overdraft at the end of months with unusual expenditure make sure you have first arranged a facility. Lenders don’t like surprises or uncertainty and your credit score will be marked down if you illustrate a record of this behaviour.
- Don’t move job or home too frequently. Again, predictability and stability are valued by lenders. Of course, real life must always win out over mere credit rating, but bear in mind the consequences of your decisions. Make sure any previous home addresses or employment details held (if any) are correct.
- Don’t have too many credit cards. A lender will look at how much credit you have access to and how much credit you actually have. Consider using one or two cards regularly and paying them off responsibly.
- Get married! OK, so we’re kind-of joking here. We don’t really recommend matrimony to improve your credit score. However, being single can have an effect. Remember, lenders like predictable stable behaviour. There is a reason insurers generally prefer middle-aged married doctors over young fighter pilots with a passion for base jumping and scuba!
- Start saving and illustrate a history of putting money aside. This might not be shown on your credit file but it’ll pay big dividends when you apply for your mortgage. All lenders want to see financial responsibility and discipline. And a decent deposit doesn’t hurt either!