We know that if you’re not up to speed with things like credit scores, they can sound complicated and make things like mortgage applications even harder. But we’re here to help explain it further and let you know how you can improve it.
Your credit score, or position, is a number assigned to you to explain your personal credit files to both you and financial institutions such as mortgage lenders. It essentially explains how ‘good’ or ‘bad’ you are at borrowing money and paying it back, called your creditworthiness, to any company who may want to lend to you. Your credit score is based on your credit report that lets credit referencing agencies such as Experian, Equifax, TransUnion and Crediva know how creditworthy you are.
Just like getting a new phone contract, your mortgage lender will check your credit score to make sure you’d be able to repay the loan. The check will access information on any borrowing and repayments you’ve already done, as well as other things such as your income. In theory, a better score can give you access to more mortgage deals and cheaper interest rates.
What does a high credit score mean?
There are a few firms or credit referencing agencies that undertake credit checks. These agencies work on different scoring scales to reflect what is considered a good credit score. A high credit score means that lenders will see you as a lower risk to lend to than someone with a low credit score.
Where do I get information on my credit score?
You can get the details of your credit score by contacting a credit reference agency directly such as Experian. They’ll also let you know the steps you can take to improve your score if it’s looking a little low.
How can I improve my credit score?
If you need to, you can improve your credit score with some simple things including monitoring your credit use and spending. Here are the main things that can improve your credit score and future applications.
Ten tips to improve your credit score
1. Register to vote on the electoral roll
Make sure that you are registered to vote on the electoral roll at your current address, even if you’ve recently moved. This just helps lenders confirm that you are who you say you are.
2. Minimise credit applications in a short space of time
Making lots of applications for credit over a short time (like a few months) could make you look overly reliant on credit and a higher risk. Every time you do an application for credit it forces a search on your credit report, and this is logged against you.
3. Not missing a payment
Missed payments within the previous six years may have a negative impact on your credit score as it could suggest to lenders that you’re not in control of your finances. Even if missing the payment wasn't your fault, you will be held accountable as equally as the other person if it is on a shared bill such as utilities.
4. Make payments on time
Making payments late can also suggest that you might not be in control of your finances. Setting up a direct debit to make sure any credit commitments are paid each month could help.
5. Not using all your credit
The bigger the difference between the level of credit you’re using and the level of credit that you can access, the more positively it will be viewed by lenders. If you’re using almost all the credit that is available to you a lender might think that you’re relying on credit and therefore wouldn’t want to lend any more to you.
6. Use credit
Not having a credit history at all can also not be good for your credit score as lenders won't know how well you can manage repayments.
Although there might a dip in your credit score initially, opening a bank account, taking out a credit card or servicing a small form of credit (such as a mobile phone contract) should all build up your credit score.
Remember, any things that you do to improve your credit score can take up to six months to be reflected on your credit file.
7. Close unused accounts
Even if you're not using some of your credit cards and they don’t have an outstanding balance, they still count towards your total credit limit. The total credit limit may be at a level a lender may feel is too high to allow further borrowing, even though a proportion of it is not being used. Close any credit cards that you’re not currently using and don’t plan to use soon.
8. County Court Judgements (CCJs)
Having a CCJ against you will negatively affect your credit score for up to six years. It's worth noting, however, that any repaid or 'satisfied' CCJs may improve your credit score.
9. Protect yourself from identity fraud
Unfortunately, even though it’s not your fault, being a victim of identity fraud can negatively affect your credit score and your applications for credit in the future. You can see if this has happened by checking your credit report.
Protect yourself from identity fraud with the Take Five initiative. Its aim is to encourage you to stop and think, why am I being asked for personal details, what do they want with my information, could this be a scam? Keeping our members safe is important to us here at Beehive Money.
10. Start reporting your rent payments
We're partnered with CreditLadder to introduce rent reporting benefits to our members - the UK's first rent reporting platform that allows tenants to have their rent payments reported to the four Credit Reference Agencies in the UK, the companies we've just mentioned above - Experian, Equifax, TransUnion and Crediva. To date, CreditLadder has reported over £600m in rent payments.
This is something that landlords and lettings agencies can’t do for you - only a company like CreditLadder can. Reporting your rent payments could improve your chances of being accepted for a mortgage or loan as, over time, it should improve your credit score with Equifax and TransUnion and could improve your credit position with Crediva and Experian.