A healthy credit rating can have a huge impact on your life.
Getting a loan approved is subject to successful credit checks, your personal circumstances and an affordability assessment.
There are a few things you can do to improve your credit rating:
Each lender conducts their own assessment of your ability to repay the loan, with the help of one or more of the following credit referencing agencies: Experian, Equifax and TransUnion. Different providers have different requirements, so being rejected by one provider doesn't necessarily mean you'll be rejected by another.
But if you're looking to get a loan or credit card, be wary about applying for several different products at once as several applications in a short space of time might damage your credit rating. An easy way to avoid this is to shop around before applying for credit and make sure your finances and credit rating are in tip top shape. Start by checking your credit report to see where there’s room to improve. Check if the information on it is correct and understand what could be affecting your score.
Here are few tips on how to make sure your credit rating is healthy and accurate from the off.
Not being on the electoral roll can cause problems as lenders use it for identity checks. If there's no evidence of you living at your address, it could impact your application so make sure you register as soon as possible if you move to a new house. It's easy to do and can be done online, though it may take a little while to update. If you're not registered the finance company may request documents to confirm your address, such as council tax bill, gas, electricity, water, mortgage details or tenancy agreement instead.
Lenders may judge your ability to repay by looking at the credit you're using compared to how much you have available to you. Using less than half of the credit that’s available to you reflects better on you as a borrower than constantly being at the maximum limit of your credit card.
If you have any old credit or store cards you never use, it’s a good idea to close them. Having access to a lot of credit may also be considered a negative thing in the eyes of lenders.
It can prove problematic if you enter into a credit agreement with someone who decides not to pay/or cannot pay the debt – especially if you’re not in the position to maintain the full contractual payments by yourself. It’ll impact your credit rating as well so it’s a good idea to make sure you know how well a person maintains their finances before you take any joint credit products.
Taking out a joint product with someone responsible and managing it well can improve your credit profile, however, so it’s not necessarily a bad thing.
Making payments on time is a vital part of a healthy credit score. Missed or late payments can stay on your credit file for up to six years and can make you look unreliable and undesirable as a borrower. This doesn’t just apply to credit card or loan repayments – it also applies to paying utility bills late and missing direct debit payments.
If you’ve missed a payment due to circumstances beyond your control, but you made the payment as soon as you noticed there was an issue, you should contact the lender as soon as possible to try and get it sorted.
To show good behaviour as a borrower and demonstrate that you can manage debts well, try to pay off any debt you currently have. This means paying off more than the minimum payment each month to make a dent in the amount you owe.
If you’re applying for credit, it’s best not to apply for several things one after the other. Each time you complete an application, a hard credit search is made by the potential lender and this leaves a mark on your file for up to 12 months.
Some lenders offer soft searches which also remain on your credit file for 12 months however it's only visible to you, meaning that you don't have to worry about how often a soft search is completed. Go here to find out the difference between soft and hard credit checks.
Shop around and use comparison websites to find the best deal for you. It’s best to only apply for products you really need, and do your best to find out if you’re likely to be accepted before filling out the application.
Credit checking is about trying to predict your future behaviour, and that includes being able to get in touch with you if you miss a payment. Building a very strong credit score can take years, and means regularly paying things on time – not just credit but your household bills, mortgage, mobile phone bill and so on.
Having a strong credit score means you're more likely to be approved for credit as companies see you as a lower risk. The higher your credit score, the better as it indicates that you have a history of managing your finances wisely and that you make payments on time.
Once you've built up your credit score, you should find it much easier to get credit.