What is my credit score and how can I improve it?
If you are renting or living with family, the first things to look at when aiming to get on the property ladder are how you can save a deposit, and how to make sure you are approved for a mortgage.
Lenders use credit scoring to assess your ability to pay for a mortgage. Credit scores record all your borrowing, current accounts, other financial information as well as public information available about you – where you live, whether you are on the electoral roll (registered to vote) and more, and assign you a ‘score’ for it. As well as looking at your income and outgoings, most lenders will have a look at your credit reference from one of the big credit reference agencies such as Experian or Equifax.
What is included in a credit reference?
- Personal details about you – your name and address, marital status
- Details about all your credit accounts such as bank accounts, credit cards, utility bills, phone contract.
- Payment status – do you pay your bills on time?
- Credit history – have you missed payments in the past?
- How much is outstanding now? How much you have borrowed in total, by type (overdraft, credit cards, loans etc)
- How much spare credit do you have? – do you have a credit card limit, but use only a small amount and repay it each month?
- How long have you had your bank accounts? – the longer, the better.
- How often you’re asking for new accounts – if you’ve just applied for 20 new credit cards, that will show up to anyone looking at the report.
- Are you on the electoral roll (registered to vote)?
- Have you had any CCJs (County Court Judgements) or been declared bankrupt?
- Do you have debts at a previous address?
- Have you been a victim of ID theft?
- How many addresses are you linked to – do you have credit accounts where the payment address is not current, or different from your main address?
- Past names – such as maiden name before marriage
- Joint accounts – are your joint account holders credit worthy?
So, before you take the plunge, make sure you have looked at your credit reference and made any improvements you can. There is a free way to do this using a service called Noddle, https://www.noddle.co.uk/ Or there is a free service on Experian, http://www.experian.co.uk/experian-account/01_free_score.html
So how can you quickly improve this credit score? While there are no magic formulas, there are some simple things you can do now that will help improve your score*:
- Register to vote at your current address
- Check your credit report and report any discrepancies
- Close any accounts or credit cards you don’t use
- If you have never had a credit card, apply for one now and use it, clearing the balance every month.
- Set up automatic minimum payments for any credit or store cards you currently hold.
*Please note we are simply informing you of ways you may be able to improve your credit score, this is not a guaranteed result. Always take advice before taking on additional credit or loans.