Lenders have tightened their criteria in recent years, and a poor credit score can severely limit your options when it comes to securing loans, credit cards and mortgages. Defaulted payments, CCJs, missed payments to credit cards of utility suppliers and bankruptcy all leave a black mark. If you need to check your credit rating or improve your score, here's how to do it.
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Most lenders carry out a credit check before deciding whether to lend you money or issue you with credit. The most popular credit reference agencies are Equifax and Experian, some may also use Callcredit. Every time you request or obtain credit, it leaves a footprint on your record. To see your record for yourself, contact the agencies direct. Some companies charge a minimum fee for this. Experian offer a free 30-day trial whereby you can view your credit history.
There is no one 'universal' credit rating or score held against your name and no such thing as a blacklist. Just because one lender has rejected you, it doesn't automatically mean others will.
The ratings differ between the various companies, but your credit file should make it clear how you score. For example, with Equifax, a score over 400 is good, below 299 is very poor. Experian scores range from zero to 1,000, and a score of more than 961 is excellent.
How can I prevent my score dropping?
Once you receive your credit report, check that there are no mistakes. Look for records of other people's debts or payments, or past debts that have already been settled, and if you find any errors, write and tell the agency.
Secondly, if your credit score is poor, stop applying for credit. Every time you apply and are turned down for credit, it will put a black mark on your file. If you do try to get credit, be sure to ask for a quotation search and not a credit search.
It's vital to keep up with repayments for existing credit agreements. If you have problems paying, speak to the creditor and see if there is any way you can spread the cost and make smaller repayments. Each time you miss a payment, and this includes going over your overdraft limit, it will be recorded on your credit history.
How can I improve my credit score?
If you haven't taken out credit before, borrowing is the quickest way to boost your rating. This is because lenders prefer to lend money to people with a history of borrowing and sticking to credit agreements and repayments.
It's a good idea to buy goods on a credit or store card, as long as you repay the minimum amount each month and don't miss a payment. If you already have a low score, this may be difficult to do without paying hiked interest rates. If you can face paying as much as 35% APR, it may be worth taking out a 'credit rebuild card'. Spend just £50 a month, and repay in full every time, and you should hopefully see your rating improve within a year.
You're too good at paying your debts
Companies aren't just looking to weed out poor payers. Credit card companies may reject people with a good credit rating who repay their cards in full each month. In order to make money, lenders prefer people who areperpetually in debt, never defaulting, but always meeting the minimum repayment. If you don't use your cards enough, shift debt to 0% cards, and always repay in full each month, some may reject you.
What else you can do
You will appear more attractive to lenders if you have a land phone line, a long-term employment history and a long history with the same bank, and have been renting or owning the same property for some years. Avoid payday loans and never withdraw cash on credit cards, as this is evidence of 'poor money management.'
When you apply for credit, make sure you fill out the form accurately and are consistent. Fraud scoring firms filter applications and look for inconsistencies - and switching your job title each time or using a different phone number can go against you.
Finally, don't forget to make sure you're on the electoral roll. It's free, and as long as your address and details are correct, lenders will look more favourably on your score.