If you want to get the best deals on everything from credit cards and loans down to mobile phone contracts and energy tariffs then you need to have a good credit score.
A credit score (or rating) is what lenders look at when they decide whether or not to give you a financial product or contract. The higher your credit score the better.
If you have a bad one you will find yourself getting turned down for the best products and it might even stop you from getting the mortgage you need to buy your dream home.
How do I check my credit rating?
There are three main credit reference agencies that lenders check – they are called Experian, Equifax and Call Credit.
Credit agencies make up your record from a number of sources, including the electoral role, County Court Judgements and how effectively previous debts have been paid.
Every time you take out a new form of credit it leaves and electronic footprint on your record.
How much does it cost?
You have the right to see your credit files for £2 and you can also do it for free.
This is called a ‘statutory report’ and includes basic information about your credit score.
The companies will try and get you to sign up their services by offering free 30 day trial, after this time you’ll pay a monthly fee so remember to cancel before the payments kick in.
How can I improve my credit score?
There are a few simple things you can do:
- Register to vote: Many companies use the electoral role to verify your identify. If you’re not signed up with your current address then you’re more likely to be refused credit.
- Pay your debts: You should have a balance that is less than 25% of your credit limit, for a credit card for example.
- Stop applying: If you’re rejected for credit you may be tempted to keep applying until you get accepted but multiple applications have a negative impact on your score because it looks like you’re desperate for credit. Leave it at least six months before applying for more.
- Close down old accounts: Some lenders will look at how much credit is available to you, as well as the amount you owe. So it’s important to close down accounts that you no longer use.
- Check: Experts at Experian told us that it’s important to check that all the information on your credit report is accurate and up to date. ‘Dispute anything that you don’t agree with. If you’ve has previous credit problems and there were special circumstances, like you lost your job or there was a family bereavement, then ask for a note to be added on your report.’
- Stability: Living at the same address for three or more years, owning rather than renting and being with the same bank for several years, as well as having a long-term employer makes you less risky to lenders.
- Set up direct debits for bills: Missed payments on bills leaves a negative mark on your credit score. Making regular payments on time is far more attractive to lenders.
- Pay more than the minimum: If you have debts try paying more than the minimum amount each month.
Be patient. There is no quick fix to get an excellent credit score. If you do have a poor rating then remember that your credit history goes back six years and lenders tend to favour your most recent behaviour. It should start to improve over time if you follow the tips above.
Where to next?