Avoid Ccjs And Bankruptcy
Being declared bankrupt, entering into an Individual Voluntary Arrangement or having a County Court Judgement made against you will badly affect your creditworthiness.
According to Experian, receiving a CCJ will knock 250 points off your score, and defaulting on an account will mean a 350 point reduction.
So it’s worth checking if there are any alternatives to these routes if you are in financial difficulty.
Usually, it takes six years for individual voluntary arrangements or court judgments to disappear from your credit report. At that point, you should see an immediate change in your score.
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Unlock Your Data With Open Banking
In November 2020, Experian launched a new product, Experian Boost, that allows it to use open banking to securely view your current account transactions without your login details.
The innovation means that real-time banking information can be used to calculate your score for the first time.
This includes your income and general spending, as well as regular payments for things like council tax, savings and investments, and digital entertainment subscriptions like Amazon Prime, Netflix and Spotify.
Experian says that 17 million people could boost their score by up to 66 points by using the tool, providing a quick and easy way to increase your score in 2021.
- Find out more: how your Netflix subscription can boost your credit score
Pay Your Bills On Time
According to Experian, payment history is the most influential factor for both your FICO and VantageScore. From a lenders perspective, an established history of timely payments is a good indicator youll handle future debts responsibly, too.
You want to avoid things like late payments, defaults, repossessions, foreclosures, and third party collections, says John Ulzheimer, credit expert, formerly of FICO and Equifax. And filing bankruptcy is a horrible idea. Anything that would indicate non-performance of a liability is going to harm your credit score.
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Use A Secured Credit Card
Another way to build or rebuild your credit is with a secured credit card. This type of card is backed by a cash deposit you pay it upfront and the deposit amount is usually the same as your credit limit. You use it like a normal credit card, and your on-time payments help build your credit.
Impact: Varies. This is likeliest to help someone new to credit with accounts or someone with dented credit wanting a way to add more positive credit history and dilute past missteps.
Time commitment: Medium. Look for a secured card that reports your credit activity to all three major credit bureaus. You may also consider looking into alternative credit cards that don’t require a security deposit.
How fast it could work: Several months. The goal here is not just having another card, although that can help your score a bit by improving your depth of credit. Rather, your aim is to build a record of keeping balances low and paying on time.
Get On The Electoral Register
If you have never voted before then your name will not be on the electoral register. Not only are you unable to have your say when it comes to voting, if your name isnt on there you will also find it much harder to get credit. You can register to vote online right now, enabling you to get your name on there instantly. This is a quick and easy win to boosting your score.
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Fix Mistakes On Your Report
Your credit score is based on the information in your . If this information isn’t accurate , then your credit score won’t be either. This could mean your score is lower than it should be. By checking your credit report regularly, you can spot and fix any mistakes, which can help improve your credit score.
Keep Your Credit Utilization Rate Low
Weigh your balances relative to your credit limit to ensure youre not using too much available credit, a practice that can indicate risk.
Ulzheimer recommends trying to maintain a utilization rate of 10%. The higher that ratio, the fewer points youre going to earn in that category and your scores are absolutely going to suffer, he says. In fact, people who have the highest average FICO scores have a utilization of 7%.
The date your credit card provider reports to the credit bureaus may also impact your utilization rate.
Ulzheimer points out that FICOs scoring systems dont differentiate between those who pay in full each month and those who carry a balance. Your utilization rate at the time your issuer reports is what’s used for your score. VantageScore, though, does consider whether you pay in full or carry your balance month to month.
If you struggle with high balances and mounting interest payments on your cards, consider consolidating with a 0% introductory rate balance transfer credit card, but make sure you know when the rate will increase and by how much.
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Check If Youre Linked To Another Person To Improve Your Credit Score
If you used to share a bank account, credit card, or other financial product with a spouse, friend or family member, then your credit score is linked to theirs. If they have a poor credit score, then it will drag yours down as well. You can complete a Notice of Disassociation to break their connection with you as a financial associate. Then your credit score will be calculated independently.
Make sure to pay your accounts in full and on time each month. This is the best way to show lenders youre a responsible borrower, capable of handling credit responsibly. If you find it challenging to keep track of deadlines, set up a direct debit with your bank so that you make your payments automatically. Old, well-managed accounts will help to increase your credit score.
You should make no more than one credit application every 3 months since the credit searches will leave a footprint on your credit file. If you have a poor credit score, use the eligibility tools on the websites of financial institutions to see if you stand a chance of being accepted for credit. Using these tools dont guarantee your acceptance but can inform you if they will refuse you. Ask whether creditors can use a soft search . Although the searches show on your report, they wouldnt be seen by later lenders.
Avoid Making Multiple Credit Applications In A Short Space Of Time
Every time you make an application for credit, a ‘hard search’ is carried out on your account, which affects your credit score. If you make too many credit applications in a short space of time, this makes lenders think you’re desperate for credit.
So if you’re rejected for credit, try to resist the temptation to keep applying. Instead, wait a while before you apply again. While you wait, check your credit report to make sure everything on there is right.
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Payday Loans Can Kill Mortgage Applications
Some payday lenders disingenuously suggest that taking them out and repaying on time can boost your credit score, as it starts to build a history of better repayment. This is true to a very minor extent for those with abysmal credit histories though using a correctly is generally both more effective and far cheaper.
If you’re getting a mortgage though, by definition you’ll need a far better than abysmal credit score. So you should avoid payday loans like the plague. Not just because they’re hideously expensive see the Payday Loans guide but because some mortgage underwriters have openly said they simply reject anyone who has had a payday loan, as it’s an example of poor money management.
To underscore the point, recent research has found that since the start of the coronavirus pandemic, a fifth of want-to-be first-time buyers who’ve had a mortgage application rejected were declined because of a payday loan.
Historically many people have been mis-sold payday loans they couldn’t afford to repay. If that happened to you, you can reclaim £100s or even £1,000s and request that any poor payment records on loans deemed to be ‘unaffordable’ are removed from your credit file. See our Reclaim Payday Loans for Free guide.
Can I Still Get A Loan With Bad Credit
Getting a loan with bad credit is possible, but its often a lot more challenging and far more expensive.
As a not-for-profit organisation, PCCU operates a much fairer model when compared to other lenders starting with the fact we dont judge a person solely by their credit score. Although we do check credit history, each application is assessed individually by a person not a computer who looks at affordability, income and expenditure. We only lend amounts we are confident you can afford to pay back, and we also dont charge differing rates of interest on loans based on your credit score.
PCCU is committed to offering products and services that help account holders manage their finances while building up a history of good money management. All loans taken are reported to the credit agency Experian, which means as long as an account holder makes their payments on time their credit rating will improve.
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What Lenders Really Know About You
It’s important to be aware of exactly what lenders know when you apply, so you can present yourself in the best light. Importantly, it’s more than just what’s on your credit file.
The application form. In many ways this is the most important part. Here, lenders obtain the key details: your postcode, salary, family size, reason for the loan and whether you’re a home owner.
Make sure you fill in the forms carefully. One slight slip, such as a “£2,000” salary rather than a “£20,000” one, can kibosh any application.
Be consistent too, fraud-scoring firms filter applications and if there are many inconsistencies such as changing your job title or different phone numbers, it can cause a problem that you may not be told about.
Past dealings you’ve had with the lender. Companies use any data on previous dealings they’ve had with you to feed into the credit score. This means those with limited credit history may find their own bank more likely to lend to them than others.
Of course, those who’ve had problems with a lender in the past may find it more difficult to get accepted there too.
Equifax, Experian and TransUnion credit files. The three UK credit reference agencies compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency. This data comes from four main sources:
– Electoral roll information. This is publicly available and contains details of addresses and who lives at them.
Why Improve Your Credit Score
Improving your credit score is important if you want to apply for credit in the future, whether you are looking for a credit card, loan or mortgage. Although lenders use their own calculations to decide whether to offer you credit, your credit score indicates your creditworthiness.
You can use your credit score as a guide to determine how likely you are to be approved for credit, so it is important to ensure your credit history is up to date and accurate. Having a high credit score can give you access to cheaper credit deals and save you thousands of pounds over time.
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What Credit Scores Affect
Heres a quick overview of how your credit score can affect major finance areas:
- Mortgages Poor scores will simply get you rejected. Work to improve this before you look at buying a property.
- whether you will be accepted and the rates you will be offered,
- Loans same as credit cards.
- Utility bills as they share data between themselves its important you pay your bills on time.
- Mobile phones generally as you are spreading the price of the handset so this is counted as a loan. If you are rejected you wont get a contract and will need to pay as you go.
- Car and home insurance Opting for monthly payments means that the insure is giving you a loan for the money over the year and generally charging you interest. They will run a credit check for this. Its cheaper to get yearly insurance due to this. Even when you use comparison markets for insurance they will run soft credit checks to provide you quotes from insurance companies.
What Is A Bad Credit Score
A bad credit score means you might find it more difficult to get credit. Thats because its an indication to lenders of problematic financial behaviour, such as a history of being late with, or entirely missing repayments.
The three CRAs each have a different number that they consider to be a bad credit score:
Experian below 721
0 to 560 is considered very poor
561 to 720, poor
TransUnion below 566
0 to 550 is considered very poor
551 to 565, poor
604 to 627, good
628 to 710, excellent
The key thing to remember is your credit score is a constantly changing thing that can modify with certain types of financial behaviour and can be improved.
If you’re in a lot of debt
If youre in real financial difficulty and in serious debt, improving your score should not be your priority – first you should get out of debt.
There is plenty of free, impartial help available to you from debt charities like StepChange. Theres no need to go it alone.
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Fraud Scoring As Well As Credit Scoring Can Cause Rejection
When you apply for a product, it isn’t just a case of assessing whether you’re desirable, but also checking the application is legitimate. So, as well as the credit reference agencies, lenders also use completely separate anti-fraud agencies to try to weed out problems. For more information on ID fraud protection, see our Free ID Fraud Help guide, but here is how the two big agencies work:
This rarely mentioned system is much less factual, and so is prone to greater errors. However, it’s used by almost all major banks and building societies, receiving 96,000 applications a day, and has a real impact.
CIFAS: Lists confirmed past fraud
It is simply a record of known fraud, so if you’re on there, in general, you should know about it. It’s also the organisation to speak to if you think you’ve been a victim of ID fraud. Worryingly, any fraud committed at your address in the past could appear on your CIFAS file, even if it was nothing to do with you.
How Is Your Credit Score Calculated And What Is A Good Credit Score In The Uk
In assessing your credit score a lender will use information from a number of sources which includes what you have disclosed on the credit application, what is contained on your credit file and any previous credit history with the lender.
Your credit file will contain details of your credit history such as loans, credit cards, mortgages and car finance. Recording the amount of the loan and whether you paid your instalments on time. Therefore maintaining an excellent repayment record on current loans is vitally important for your future creditworthiness so always make sure you at least pay the minimum monthly repayment amount to avoid any adverse impacts to your credit rating.
As was mentioned above there essentially is no universal credit score and therefore there is no “good score” to benchmark yourself against. However, by accessing and managing your credit file you can help improve your creditworthiness.
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Close Any Unused Accounts
Closing any unused bank accounts can help improve your credit score. And if you have multiple credit cards, you should look at consolidating the debt into just one. Take a look at interest-free balance transfer credit cards, which allow you to move debt from cards that charge interest onto one that dont .
Consider Getting A Credit
If you have low credit, you might want to consider getting a . These cards are for people with poor credit and or little credit history. By using these credit re-build cards to pay off your bills each month, you can prove that you are worthy of credit and improve your credit score. You will be able to apply for other forms of credit when your credit rating improves. However, be aware that these cards come with much higher interest rates than standard credit cards.
When applying for credit, lenders are much more confident to lend money if they see evidence that you have lived at the same address for a significant amount of time. Again this is a sign of financial stability. Make sure to keep this in mind!
Paying rent on time can build your credit score
Do you pay your rent on time? If yes, then great because this can boost your credit rating! The Rental Exchange Initiative is a free scheme which millions of social housing tenants and private renters can use to make paying rent build their credit file and improve their credit rating. Experian and The Big Issue Group launched this scheme in March 2016. It records your rental payments which Experian add to your credit file for lenders to see.
Getting any court judgements for debt can seriously ruin your credit score. If youre struggling with keeping up with payments, find free debt advice online or look into the cost of debt consolidation.
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