Whether it's a mortgage, credit card, loan or even a mobile phone contract you're after, the information held on your credit file will be crucial in determining whether or not your application is successful.
If you know your credit score is less than perfect, or you don't have much of a credit history, there are steps you can take to improve your rating and increase your chances of getting a loan or credit card.
Are you registered to vote?
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. If you're not, simply contact your local council and ask for a registration form or sign up online.
Are you credit active?
It may sound a contradiction in terms but not having credit cards or loans can actually work against you. 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.
People often balk at cards such as Barclaycard Initial or Capital One Classic because they charge high rates of interest - 27.9% and 34.9% respectively - but they can be a great way of building your credit score.
The most competitive credit card deals are only available to those with excellent credit ratings so if you don't have much of a credit history you are unlikely to qualify for them.
The acceptance criteria on cards such as Barclaycard Initial and the Capital One Classic, is less stringent and as long as you clear your balance in full each month, you won't be charged any interest. Therefore, opting for this type of card can be a great way of proving that you can manage credit. In turn it will boost you chances of being accepted for more competitive products in the future.
Other cards that may be worth considering are Barclaycard Gold and the Vanquis Credit Card.
Check your credit score
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 from the main credit reference agencies Equifax and Experian. If there are any inaccuracies you can 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. CCJs can bring your credit score down considerably, so make sure you are not unfairly rated based on old, settled judgements.
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. Therefore only apply for deals you are likely to be accepted for.
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 worth 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.
Set up direct debits to safeguard payments
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 down accounts you no longer use - now
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.
Boost your score by paying on time or ahead of schedule
Try to pay off loans and credit agreements ahead of schedule. Lenders will look favourably on this.
Other factors - don't forget the basics
When you apply for credit, lenders also look at the length of time you have lived in the UK, so if you are new to the country, you may have to wait a minimum of three months before applying for a credit card, for example. Likewise, some lenders will want to know and have proof of your income and will check your employment status. Finally, having a bank account and good banking history can also reflect well on your applications for credit.
The Equifax credit score test
To help you work out how you might score when next applying for credit, Equifax has developed the following 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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