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10 things you need to know about your credit score and how to improve it

15 August 2016

Your credit score is one of your most valuable financial assets.  It influences your ability to access credit, including loans, mortgages and credit cards, and can dramatically affect the rate of interest you pay. Lenders typically restrict the best deals to borrowers with a good credit history so, the stronger your score, the less interest you will pay overall. 

Gocompare.com Money outlines 10 ways you can boost your credit score. 

1. Check your credit score and correct any mistakes

A credit report (also known as a credit file) contains information that has been compiled by a credit bureau about your credit history.  This information is collated from a number of sources and includes information on what you currently owe, how well (or badly) you have managed credit in the past and, whether you are registered on the electoral role.  When considering an application for credit, as well as scoring you against their own criteria, lenders may refer to one or more credit reports on you.

You can check credit files held on you by getting a credit report from either of the UK's main three credit bureaus - Equifax, Experian and Callcredit - or from one of the third-party agencies that use their data. When you receive a report - check it.  If it contains any mistakes, immediately notify the relevant agency.  You can also ask for a note to be put on your file to explain extenuating circumstances regarding problems or if, for example, a debt issue has been resolved. 
The credit agency is legally required to review any issues you raise.  Any negative information should only remain on your record for six years.

Prices for credit reports vary along with the type and quality of data provided.  Gocompare.com Money's credit report comparison service enables you to review a range of the services.  See Gocompare.com's guide for more information on the different credit report options.

2. Register to vote

Your presence on the electoral roll provides lenders with proof of your name against a fixed address and helps to combat fraud.  If you are ineligible to vote in the UK you should send the credit rating agencies proof of your residency and ask them to attach a note to your file to verify this.  Acceptable forms of identity include a utility bill or UK driving licence.
3. Manage credit responsibly and on time

When assessing an application, lenders will look for evidence that you are a responsible borrower and have a good record of repaying previous credit.  They will search your credit report to build a picture of how you are managing any current credit you hold, how you've managed it in the past and, will view a late or missed payment as a breach of contract. 

Any missed or late payments on anything from your mortgage, credit card, personal loan, or utility bills will stay on your credit file for six years. So, it's important to make sure you keep to agreed repayments.  A direct debit on or before the payment date (even if this is for the minimum amount) will help you keep your repayments on track. 

4. Don't max out on existing borrowing

It should help your credit rating if you don't borrow up to the maximum on your existing credit cards.  Lenders may be nervous about allowing you to borrow more money if they think you are already over stretched.  As a rule of thumb, try not to exceed 30% of your total available credit limit every month.

5. No credit history equals poor credit history

Prospective lenders look at your history of repaying previous debts as a way of indicating your ability to repay new borrowing.  This can be a problem if you have no prior history to point to.  However, there are credit builder products available.  These products tend to attract higher rates of interest but, if you clear the balance in full each month that needn't be too much of an issue. 

Other factors that can have a positive influence on your credit score include - a settled period at the same address; a history of long-term employment; increasing your salary; supplying a landline number; keeping your bank account in credit or inside an agreed overdraft limit.

6. Close old accounts

In assessing your suitability for credit, lenders look at how much credit is currently accessible to you - not just how much you are actually using.  So, close any old, unused accounts you hold.

7. Smart search for credit

A 'smart' or 'soft' search for credit will help you find products which you are likely to be accepted for, without damaging your credit score.  When you apply for credit, the application leaves a mark on your credit score.  Unsuccessful or repeated applications can have a negative effect on your credit score.  A soft search lets you check what credit deals you are most likely to be accepted for without affecting your credit score. 

8. Don't make multi applications for credit

Multiple applications for credit can have a negative impact on your credit score and can adversely affect your ability to obtain credit in the future.  Every time you apply for credit it is recorded on your credit report.  When checking your eligibility for future credit, lenders see your previous applications and may mistakenly assume that if you've declined an offer, you were rejected.  Also, multiple applications made in a short period may make you look desperate for money.

9. Take care with joint accounts

Your ability to obtain credit may be affected by who you are financially associated with.  You are financial associated with someone if you hold a joint credit account or mortgage.  You should always make sure that your credit history is separated from ex-partners and that the information held by credit bureaus is an accurate reflection of your current circumstances.

10. County Court Judgments (CCJ) for debt seriously impact your credit score 
A CCJ (called a decree in Scotland) for an unpaid bill will seriously inhibit your credit score and your ability to obtain credit.  CCJs stay on your file for six years.  If you have any CCJs which are now settled, ensure your credit file is updated to reflect this.

Matt Sanders from Gocompare.com Money commented: "Your credit score is incredibly important to your financial health.  It has a huge impact on whether you can get a loan, credit card or mortgage and the interest you pay on any borrowings. 

"Essentially lenders want customers who will repay their borrowing.  So, when deciding whether and on what terms to offer you credit, prospective lenders have their own criteria with which to judge your application against.  This together with the credit scoring system enables them to build-up a picture of your financial habits and decide how much of a risk it is to lend to you.  The higher your credit score is the more credit-worthy you are and the more likely it is that you will be able to access the best deals on the market.  If on the other hand your score is low, lenders may decide not to offer you credit or lend you money at a higher rate of interest.

"If you have a low credit rating - either because you have little credit history or have had problems with managing money in the past - you can take steps to boost your rating.  At the most basic level, you should ensure that your name is on the electoral roll and that any information held by credit rating agencies is accurate and reflects your current circumstances."

Gocompare.com has created a dedicated guide on improving your credit score.