A couple of weeks ago, head of marketing, Forbes Campbell, shared his views on the ease of access we now enjoy as consumers, to our personal credit score. However, access is just one element – what if you’d like to maintain or increase your score over time? Here are some key things you need to know and the actions you may wish to take.
Lenders, including mortgage companies, banks, utilities providers and retailers among others, will use your credit score to make a decision as to whether to lend you money, extend you credit (e.g. give you a credit card) or approve a finance application. But in order take make this assessment they use your credit score. Here’s a simple guide to managing your score.
Get the basics right
First things first, if you don’t have a score, you’ll need to establish one. In order to do so, the following are crucial:
- Ensure you’re on the electoral roll – being registered to vote at a permanent address will have a significant effect on your score – you can register anytime at https://www.gov.uk/register-to-vote
- Open a bank account
- Make regular payments towards a bill. A phone contract or internet service provider bill can be a relatively inexpensive route to achieving this, but equally a credit card or utility bill is an option
- Sadly, credit history doesn’t travel well. If you’ve moved to the UK, you won’t be able to take an existing credit profile with you – you will need to establish one here. Send proof of residency (e.g. utility bill/driving license) to the three UK Credit Reference Agencies to start the ball rolling
Don’t suffer unnecessary checks
Each time you make an official application for a lending product (e.g. Credit cards, mortgages, car finance etc.) a ‘hard’ check will be performed by the lender on your account. This check will be visible to other lenders and, if you have several close together, can negatively impact your credit score.
For this reason, it’s always best to test how likely you are to be accepted for finance, before you apply. Some very useful ‘eligibility calculators’ for loans, mortgages and credit cards can be found at moneysavingexpert.com – these calculators use a ‘soft check’, which can’t be seen by other lenders and won’t impact your score.
You have to take credit, to earn credit
One of the unfortunate realities of credit scores is that a good score is only available if you have debt. We aren’t rewarded for never going into debt or managing our income so that we have enough available cash to cover all our purchases. Instead, lenders want to see evidence of you taking credit and paying back over time. If you’ve never had a credit card before, or had one but never used it, it’s a good time to make some planned purchases that you know you can repay.
Don’t overstretch yourself
Credit can often be used to plug a gap in funds for a specific item, such as a car, holiday or sofa. But be careful not to simply get more credit cards to fund additional purchases before making repayments on existing ones. Credit reference agencies look at ‘utilisation’, which is best described as the proportion of available credit that you’re currently using. For example, if you had two credit cards with £10,000 limits, both with a balance of £7,500, your utilisation would be 75%. Though there are several opinions on the matter, 30% utilisation is often seen as a good level for your credit score.
Don’t miss payments
Ok, so this is obvious – none of us set out to miss payments, but it happens. The good news is there are a few things we can do to reduce the chance of this happening:
- Understand the payments coming out of your account – it’s so easy to lose track of all the direct debits, standing orders and ad-hoc payments coming out day by day. Building a calendar view for the week/month that payments tend to come out is a great way to get more in control
- Align payment dates – if you’ve got regular payments such as rent, mortgage, phone and utility bills, it’s best to arrange them so that they’re paid soon after your salary hits your account. This means you’re less likely to be juggling at the end of the month