Clare Francis, Site Editor
Do you know what your credit score is? If you don't, then you are not alone...
Many consumers perceive their credit rating as something over which they have no control and most have no idea that there are steps they can take to improve their rating. But there are things you can do, and it could make a big difference to your ability to get loans and credit cards.
Neil Munroe at Equifax, an online credit reference agency, said: "Lenders make checks with credit reference agencies to see whether an applicant has kept up-to-date on repaying their credit. They also use a scoring system to decide whether or not to lend to consumers - and in some instances - at what price. Basically, the better an individual's credit score, the better the rate they will get."
We asked Equifax to lift the lid on credit scores and help you get the best deals. Here are its top tips for improving your credit rating.
Are you registered?
The electoral roll is used by many companies for verification purposes in order to combat identity fraud. It is vital, therefore, that you are registered on the electoral roll at your current address.
Are you credit active?
Not having many credit cards or loans can affect your credit score. Lenders are looking for signs that you are capable of repaying money you have borrowed. So it's worth considering opening an account to establish a credit history - even if you pay it off in full at the end of every month.
Check your credit file
Are you sure that the information held about you is correct? It is worth checking your file to make sure that it does not contain incorrect details that could inhibit your ability to get credit. You can obtain a copy of your credit report for £11.95 from http://www.equifax.co.uk/. If there are any inaccuracies, get them changed.
County Court Judgments (CCJs)
If you've had a CCJ and it is now settled, make sure the settlement is recorded on your credit file. If it isn't, contact the court to get confirmation details and inform the credit reference agencies.
Stop applying
If you have been refused credit, obtain a copy of your credit rating. But do not carry on applying elsewhere. Each search by a lender will leave a 'footprint' on your credit file. If you make lots of applications in a short space of time it could negatively affect your credit score. Warning bells will start flashing with lenders because they may think that you are over-stretching yourself financially.
Change of circumstances
If your circumstances have changed - maybe you've been made redundant or have recently divorced - and you are struggling to keep up with credit payments, then it's important to say so. You can place a Notice of Correction on your credit file explaining the background to any arrears. this is particularly woth doing if you have now got yourself back on track. A lender will review this when assessing any credit applications you make.
Avoid a high balance
Avoid maxing-out on your credit card. If you carry a debt on your card, try and make sure it doesn't exceed 30% of your credit limit. If you regularly owe more than this, lenders may view it as excessive debt and be concerned about your ability to keep up with repayments.
Be direct
It's easy to forget a payment so setting up direct debits and standing orders with your bank will ensure payments go out on time. Late or missed payments not only result with you being hit with penalty charges by your lender, they will also have a negative impact on your credit score.
Close it down
Financial companies are paying more attention to the total amount of credit available to individuals, rather than just focusing on the amount they owe. It is therefore important to close down any accounts you no longer use. If you don't, it could reduce your credit score.
Early bird catches the worm
Try to pay off loans and credit agreements ahead of schedule. Lenders will look favourably on this.
There are other factors which could affect your credit score such as the length of time you have lived in the UK, your employment status and whether or not you have a bank account.
The Equifax credit score test
To help you work out how you might score when next applying for credit, Equifax has developed the Credit Score Test.
Quiz questions
|
Questions |
Yes |
No |
N/A |
|
Are you registered to vote at your present address? |
10 |
0 |
|
|
Do you have at least two active credit accounts? Such as a credit card, store card or loan. |
10 |
0 |
|
|
Are all your credit account payments up to date? |
15 |
0 |
0 |
|
Have you missed payments on your credit accounts in the last 2 years? |
0 |
10 |
0 |
|
Do you have any County Court Judgments or been declared bankrupt? |
0 |
25 |
|
|
Have you ever defaulted on a credit agreement? |
0 |
25 |
|
|
Have you applied for more than two items of credit in the last six months? |
0 |
5 |
|
Scorecard
90-100 - Excellent. Your score shows that you would be a strong candidate for credit
70-89 - Good. Your score shows that you have a good chance of being granted credit
50-69 - Fair. Your score shows you may have some problems obtaining credit
0-49 - Poor. Your score shows you may have considerable difficulties in obtaining credit
If you are looking for a credit card or personal loan but don't have a great credit score moneysupermarket.com's Smart search facility will help you identify the deals you will most likely be accepted for.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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