Here are some practical steps that could help you improve your credit score.
So you think credit scores are built from complicated statistical models that you can't do anything about? Well, I've worked in banking for 12 years and while true to a degree, there are practical tips that you can take to improve your credit score today.
Before I go though the quick dos and don'ts, you have to think like a bank. Look at yourself and ask:
- 1) How well have I managed my credit?
- 2) On paper do my incomings cover my outgoings?
- 3) How easy is it for me to get away without paying it back?
You need to give yourself honest answers to the questions above, a bank will see things in black and white when it makes its decision.
The Dos
- 1) Be visible, no record equals no credit - Not on the electoral register? No credit. Gaps in your residential record? No credit. You wouldn't lend money to somebody that you can't track, would you? Well banks don't either, so make sure you are on the electoral register and you have at least 3 years continuous residential address history. To find out more about getting on the ER visit www.direct.gov.uk and type in electoral register.
2) Check your history - Regularly check your credit records. These are used by banks to score you; incorrect data could mean you will be declined through no fault of your own. It is quick and if you use www.creditexpert.co.uk it is free for 30 days. You must remember to cancel before the 30 day limit unless you want to monitor your report on a regular basis.
3) Get credit and use it well - You don't need to get into debt to do this, you simply need to show you can responsibly use credit. A credit card paid monthly and a mobile phone on a monthly tariff are good starting points. Get these now to significantly help future scores.
4) Show stability - This can be trickier because people change jobs and move home. That said, a joint application, including a land-line number, or using your oldest active bank account in an application will only help. If you know that you are changing job or moving home carefully plan when you are applying for credit as you are 'less stable' after a move.
The Don'ts
- 1) Multiple applications - Don't let people search you willy-nilly and be aware of the people that do search you. Any thing on a contract or where you don't pay upfront will usually have a credit search. This will include all finance, most utilities, mobile phones and so on. If you shop around, be aware that when your details are being taken they are probably scoring you. If you keep doing this, you will harm your credit score because on paper you will look desperate.
- 2) 'Max out' your existing credit - You're better off getting more credit and staying below the limits than having less credit and running them up to the limit. If you are bouncing off, or over the limits set, you look desperate.
- 3) Don't ask for more than you can afford - Banks will look at debt to income calculations, so if you're up to your eyeballs already, you will not get credit. Banks have tightened up in the last year, so don't be surprised if you now get turned down when you were approved before.
- 4) Don't miss payments - Self explanatory, but even if you are a few days late you will impair your record. Not paying your minimum card balance for example will give you a black mark even if it was only £5!
Finally if you do get declined, it is not the end of the world. It is not necessarily a reflection on you, but a calculation based on groups of people that have similar characteristics to you. The days of talking to your local bank manager are long gone; so keep abreast of how banks operate to give yourself the best chance of approval.