This is a short pre-holiday update things for you to consider for the new year, these are a few tips on how to improve your credit rating
How to improve your Credit Score
Applying for Credit
Every time you apply for credit, a credit application search, (a ‘hard’ search), will be carried out on your credit report and this will leave a mark on your file.
Making an occasional application for credit won’t have an effect on your credit score, in the long-term. However, you should be aware that if you make lots of applications in a short space of time, or if you have been refused credit, it’s very likely to have a negative impact on your credit score.
If you want to reduce the number of ‘hard’ searches on your report, you can check your eligibility for a credit product using quotation searches (these are called ‘soft’ searches) before you formally apply. This is better for your credit score, as you alone will see the quotation searches on your report as they’re invisible to lenders. The benefit of this is that you can then see your eligibility for products. Check your credit score and report.
Make sure you are on the electoral roll
Banks and Lenders like to know that when you apply for credit you are stable. One way they determine stability is to look at how long you’ve lived at your address and more importantly, they will check if you are on the electoral roll. If you’ve been living in one place for a long time, this will be better for your credit score than if you have several different addresses. Being on the electoral roll gives the lender the confidence that not only are you who you say you are, but that you have a settled address.
How long have you held your accounts?
Banks and lenders like to see signs of stability So they will look at the age of your credit accounts. They like to see that you have held accounts for several years again this not only proves who you are, but shows you’ve been trusted by another lender over a long period of time. It’s likely to have a positive impact on your credit score if you have an older credit account on there.
Do not miss any payments or pay late
If you miss a payment or pay late on a debt, this will be marked on your credit report and it’s likely to have a negative effect on your credit score.
If you miss lots of payments your lender may place your account into ‘default’. Each Lenders will have different rules for how many payments you’re allowed to miss before you default. Some will allow you to miss up to 6 payments but for some lenders you may only be able to miss 2 payments before you are declared in default.
Defaulting on a debt carries a much heavier penalty on your credit score than missing a payment.
Missing and default payments will be marked on your credit report and will remain there for 6 years.
Even if you have defaulted on an account, try and pay back the debt it will look better on your credit report. Remember, it’s never too late to pay back a debt. It will show the lenders that you are trying to make up for the missed payment.
How much of your credit limit have you used?
The amount of credit you use will have an impact on your credit score. For example, if you use too much of your total available credit it could damage your score.
Try and Keep it under 1/3 of your available credit is typically a good strategy.
If you go over this level it could be seen as negative on your report
Equifax have given the following information as a guide to show how a high credit might impact your credit score:
- If you use between 50% – 75% of your total credit limit, this will show up as an ‘amber flag’ on your credit report, meaning it may have a negative effect on your credit score.
- If you are using more than 75% of your total credit limit, this will be a ‘red flag’ on your credit report, and it’s likely to have a more significantly negative effect on your credit score.
Think carefully managing about how you use your credit card. For example, if your total limit is £2000, you might not want to use more than £600.
If you have one credit card with a high credit limit, this may have a positive effect on your credit score as it shows you’re trusted with this level of credit by the Lender.
CCJs, IVAs and bankruptcy
If you have a CCJ (County Court Judgement) against you, an IVA (Individual Voluntary Arrangement) or bankruptcy, this information is on the public record and becomes part of your credit report.
If you have either of the three above items marked on your report, it will have a negative impact on your credit score and its likely lenders will be less willing to lend to you. This is because it shows that you have broken a financial arrangement in the past. Try to make sure that you comply with any court orders to try and get your debt under control.
Incorrect information on your report
Sometimes information on your report may be incorrect and this can have a negative effect on your credit report.
Some of the most common mistakes can include incorrect names and addresses, but other details such as whether you’re on the electoral roll, your debt levels and account status can have errors as well.
If your name or address have errors or if you have used different names and or addresses for different accounts, some of these accounts may not appear on your credit report. This may mean you lose out on any positive effects that these accounts may have on your credit score. Make sure you look at the ‘accounts’ section of your credit report to check all of your accounts are there and there’s nothing that you are not aware of.
No credit agreements or credit history
If you don’t have any active credit accounts –this may have a negative impact on your credit score. The reason for this is that lenders have no current information about your ability to borrow money and repay it reliably, and therefore you may be seen to be a credit risk.
If you have no credit history you may struggle to be approved for credit in the first place.
Check your credit score
register with ClearScore to find out your current score
- Don’t keep applying for Credit
- Make sure you’re on the electoral roll
- Old credit accounts will help your score
- Always try to make a repayment even if it’s late, better late than never
- Try and keep your credit limit usage below 50%
Enjoy the holiday all!!!! and see you in the new year for those who attend the sessions.