To get credit where it’s due you have to play a rating game
YOUR credit rating is important. It can not only help you to get the best deal on your borrowings, but can also affect your eligibility for everything from car finance to mobile phone contracts.
It therefore pays to understand how companies work out your credit score and make sure you have the highest rating possible.
Rob Holt, director of own brands at store card provider New Day, said: “Maintaining a good credit score is vital to securing a healthy financial future.
“It is important to recognise that your credit score is considered by lenders when applying for credit cards, as well as loans, mortgages, overdrafts and even other services such as gas and electricity contracts.”
Although a survey from Equifaxfoundthatnearlya third (30 per cent) of consumers believe lenders share a blacklist, the credit reference agency’s credit information expert Lisa Hardstaff said that the credit blacklist is “a myth”.
“When you apply for credit, the lender will look at your credit report, but it will also take into account the details on your application formaswellasitsownlending policies and business goals,” she said. “It’s actually good news for consumers because you can be rejected by one lender but accepted by another.”
Lenders do not only reject people with a low credit score, with those who score highly also sometimes being turned away. If, for example, you pay off your credit card in full every month or you shift from one zero-rate card to another you are unlikely to be a profitable customer. The bank could therefore reject your application.
You can also be turned down for a loan if you have never had any credit before.
Alternatively, you could be offered a different deal. For example, if you apply for a zero-rate credit card the bank might offer you a card with a higher rate of interest or a card with a shorter zerorate period depending on your credit score.
There are three UK credit reference agencies – Callcredit, Equifax and Experian – and the lender will contact at least one when you apply for a loan. Your credit report contains a lot of valuable information, including your name, address, date of birth and electoral roll entry, as well as details of any credit accounts you have opened and how you manage those accounts.
“If you apply for any joint credit, such as a joint mortgage, a link, or financial asso- ciation, is created to the other account holder,” Hardstaff said. “Lenders can take a joint-account holder’s financial behaviour into account when you apply for credit as an individual.”
Some information, such as your salary, employment and medical history, is not on your credit file, which is why the application form is also important.
It makes sense to regularly check your credit report as errors could affect your eligibility for loans or other credit agreements. You have a legal right to access your file for a £2 charge or you can sign up for a free trial with one of the agencies, as long as you remember to cancel before the end of the free trial period. It is also a good idea to check your file after a rejection in case there is a mistake on the report.
Lenders do not have to disclose their credit-scoring system, but there are a number of ways to boost your credit score. Here are the top 10 tips to a higher credit score.
Register to vote. If you are not on the electoral roll you are unlikely to get any form of credit. If you are not eligible to vote in the UK, send proof of residency to the credit reference agencies.
Do not default on loan repayments, miss a payment deadline or spend over your credit limit. Most lenders take a dim view of poor credit management and could turn down a new loan application.
Think carefully before taking out a joint financial product with someone because their poor credit score could affect yours.
If you split up from a partner, make sure you also uncouple your finances.
Do not make multiple credit applications in a short space of time. It could suggest poor money management skills and so lower your score.
Soft search for credit. A number of websites allow you to test whether you are likely to be accepted for a loan without leaving a potentially damaging footprint on your credit file. Kevin Pratt of MoneySuperMarket said this is because “other providers will assume you’re not an attractive prospect”.
Always keep addresses on accounts up to date. If you have a credit card registered to an old address it could affect your score.
If you have never borrowed any money, the lender has no way of checking your credit history. So it might be a good idea to build up a credit history with a credit builder card. The cards charge high rates of interest, although this would not matter if the debt was repaid in full each month. The aim is to demonstrate that you can manage credit responsibly.
Payday loans can affect mortgage applications. You should therefore avoid payday loans if you are – or hope to be – a homeowner. Some lenders also penalise people who withdraw cash on their credit cards.
Cancel unused credit and store cards. If you have a wide range of cards and open lines of credit, a lender could turn you down.
‘‘ It might be a good idea to build up a credit history with a credit builder card to show that you can manage credit responsibly
TIPS: One way to help maintain a healthy credit rating is to cancel unused credit or store cards.