Check, Manage, and Improve your Credit Score with our expert guide!
Does your poor credit score feel like a ball and chain that’s constantly weighing you down?
Well don’t worry – we’re here to help!
Let us guide you through the process of managing your credit score so that you can feel free of your financial worries, and kick your poor credit score into touch!
In this section we will demonstrate how you can check your credit score, and by following advice from our credit expert, hopefully improve your credit rating. There are many possible reasons why you might have a poor credit score (such as, unpaid bills, debts, or bankruptcy), but fortunately we’re here to help you manage your finances better, and ultimately try to help improve your financial situation as a whole.
How To Find Out If You Have A Bad Credit Score
If you are considering applying for a financial product such as a bank account, mortgage, personal loan or credit card then the lender will assess your application. This process will usually include such things as internally credit scoring your application and carrying out a credit reference search with one or more of the three main credit reference agencies – Equifax, Experian and Callcredit.
What is an internal credit scoring system?
The bank will take into account various things contained on the finance application form as well as other factors. The internal credit scoring system undertaken by lenders is likely to be different between each of them. For instance, one finance company may place more reliance on whether someone has a landline telephone number than another. Another bank may give someone a better credit score if they are in a profession than a different lender.
If you are applying for finance through your bank they will probably take into account how you operate your current account. So, if they have had to return direct debits unpaid due to there being insufficient funds in the account, this would have a negative impact and result in a bad credit score.
Unfortunately, you will not be able to find out exactly what a lender uses to work out if you have a bad credit score or not and specifically how they rate each part of the application to give you an overall internal credit score.
Why find out what information the credit reference agencies hold about you?
You can find out what information the major credit reference agencies hold about you and what level of credit score rating you have been given by each of them.
It is important that you do this to make sure that the information is accurate and that nobody has tried to fraudulently use your personal data to apply for credit as well as provide you with a better idea as to whether the finance application that you are considering applying for has a chance of being approved.
Every time that you formally apply for finance and a credit reference search is made a “footprint” will be left on your file with the credit reference agency. If your file shows that you have had numerous ”footprints” over a short period of time this may be held against you when applying for finance.
It is better to be forewarned about the state of your credit file meaning that you can be more selective about who you apply to for finance i.e. would you be better applying to a sub-prime lender than a major high street bank if you have a bad credit score.
How do you find out about your credit history with the credit reference agencies?
You can either apply online or in writing, paying a fee of £2 each time to one or more of the three credit reference agencies. The credit reference agencies will provide you with the application form that you should complete and send to them. You will need to provide your full name, addresses that you have lived at for the last six years and the fee.
They will send you the information that they hold about you that will include such things as whether you are on the voters roll and details of your financial commitments such as loans and credit cards including how those are being maintained i.e. are you up to date or behind with your repayments. Also details of any County Court Judgements (CCJs) will be provided to you.
In addition, each of the credit reference agencies will give you their own internal credit score based upon the information held.
Below we provide the contact details for each of the three main credit reference agencies so that you can make your own enquiries: –
Credit File Advice Centre
PO Box 1140
Customer Support Centre
PO Box 8000
PO Box 491
Alternatively, you can pay a monthly fee to the credit reference agencies and they will send you a regular, updated copy of your credit file.
How do you get a bad credit score?
When applying to a bank or building society to open a bank account or to arrange the likes of a loan, overdraft facility, credit card or mortgage they will often use an internal credit scoring process to assess your suitability for the product. This will usually include carrying out a credit reference search with one or more of the credit reference agencies. If you fail their credit scoring system you may be declined for the product that you have applied for. Therefore, you may find it useful if we explained how you could end up with a bad credit score, as this may help you avoid getting into such a situation in the first place.
What is a credit rating?
A credit rating is an assessment of your financial situation at a given time based upon financial information held by the credit reference agencies about you and/or also the data that the bank holds internally about you as well as the information contained on the application form.
What impact could your credit status have?
If you have a good credit rating then it will help in your ability to get the product that you are applying for. However, if it is unsatisfactory, you could, as already mentioned, be declined for the product or offered less advantageous terms such as paying a higher rate of interest on the loan or mortgage, or having to apply for what’s known as a bank account for bad credit.
Who provides the credit reference agencies with financial information about you?
Many financial institutions such as banks, building societies, hire purchase companies, loan and credit card providers will notify the credit reference agencies as to how you are maintaining such things as your mortgage, loan and credit card. Also some mobile phone and utility companies provide data.
What things can affect your credit score?
You are likely to get a bad credit history with the credit reference agencies if, for instance, you are in arrears with your mortgage, are over your credit card limit, have missed a loan repayment and frequently exceed your overdraft facility. If you have a County Court Judgement(s) or are bankrupt this information will be held by the credit reference agencies and have a negative impact on your credit rating. You could even find that you get a poor credit rating if you are not up to date with paying your mobile phone bill or utility bills.
Your credit score could be affected if you are not listed on the voters roll or have a history of moving from property to property on a frequent basis.
If you applied for a credit card and were unemployed when doing so you are less likely to be accepted than if you were in paid employment for the last 12 months.
Your credit score may even be negatively affected if you stated on a loan application form that you did not have a landline telephone.
How to improve your credit rating
You will be aware that in the last few years the economic climate has been less than favourable. Many people built up huge levels of debt that they were unable to service resulting in them getting a bad credit rating with the credit reference agencies.
This could be caused by missing one or more mortgage repayments, exceeding your credit card limit or even having a direct debit returned unpaid by your bank to your mobile phone or utility provider.
Unfortunately, such data can remain on your credit file for up to 6 years making it difficult and sometimes impossible to get further finance such as a mortgage, loan and credit card. However, there are certain things that you can do to improve your credit score and help “open the door” to getting new lines of credit even if it may mean having to pay a higher rate for the finance. You will also still be able to apply for a bank account with bad credit history, although such accounts do have some limitations on the services that are offered to you.
So, let’s have a look at some of the things you can do to improve your bad credit rating: –
Check your credit history with the Credit Reference Agencies
There are a number of credit reference agencies in the UK. They record information about you that is provided by various sources such as whether you are on the voters roll, details of finance commitments that you may have including whether you are keeping up repayments or not and whether you have any County Court Judgements (CCJSs) or have been declared bankrupt.
When you apply for credit, the lender will carry out a credit reference search on you with one or more of the credit reference agencies and this will leave a footprint on your file.
Bearing in mind that lenders place a huge reliance on the information held by the credit reference agencies, it is vital that the information is accurate. Therefore, it is important that you request a copy of your credit file to check your credit history. If you feel that something on your credit file is incorrect then you should challenge it to have the error corrected.
For example, you may have got behind with your car finance repayments 12 months ago but cleared the debt when you sold the vehicle. Make sure that the records show that the liability has been cleared as, if they do not, this could have an impact on your credit score.
Check your file for identity theft to make sure that someone has not taken out finance in your name and defaulted on the debt.
Review your credit report periodically.
Are you on the Voters Roll?
Lenders place a great deal of reliance on whether someone is on the voters roll at the address they are current residing at. So, when you receive a copy of your credit file from the credit reference agency, check that you are registered. If you are not then you can go onto the ‘About my vote’ website (http://www.aboutmyvote.co.uk) to find out the name and address of the local electoral registration office that you need to contact to have your name added to the voters roll.
If you have a bad credit score, taking this action should help improve it.
Maintain your financial commitments
It is important that you keep up agreed monthly/weekly repayments on your liabilities that you may have been struggling to pay such as a mortgage, loan and credit card. This should both help evidence that you are “getting back on your feet” again and help improve your poor credit rating.
Don’t submit too many credit applications over a short period of time
As mentioned earlier, every time you apply for credit the financial institution such as a bank will carry out a credit reference search with one or more of the credit reference agencies and leave a footprint to this effect. Imagine the effect if you were to apply to 6 different lenders for a loan over say a 4 week period.
Another lender will see those footprints and may not look favourably on this, perhaps suspecting that you are desperately seeking finance. It is probably better to spread out applications over a longer period of time.
Close unused forms of credit
Over the years you may have accumulated say 5 credit cards, got into trouble with 2 of them but have not used the other 3. When a lender looks at your credit file they will still take into account the fact that you could still use those 3 cards as you could further increase the level of your debt. Therefore, you should consider closing them and it will remove the temptation to use them.
Can you offer a lump sum settlement?
You may have defaulted on a credit card owing £10,000 and be making nominal monthly repayments meaning that it could take many years to clear the liability. You may have inherited a sum of money and be in a position to ask the lender if they will accept a much lower lump sum (say £3,000 to £4,000) in full and final settlement of the debt as long as they agree to remove the default marker with the credit reference agencies against the debt. If you do have surplus funds then you may wish to speak to the lender in this respect.
Apply for a “Bad Credit” Credit Card
There are credit card companies that provide credit cards specifically for those people with a bad credit rating. Do bear in mind that the interest rate is likely to be significantly higher than that of a normal credit card and the initial limit is likely to be fairly low – perhaps £500. However, it does give you the opportunity to improve your bad credit score as long as you either maintain the minimum monthly payment or, better still, clear the balance every month.
Don’t keep moving home or job so frequently
Lenders like to see a period of stability so by residing in the same home and keeping the same job for an extended period of time may help improve your bad credit history.
We hope that the above guide from our credit expert proves of benefit, and helps keep you on the right track so that you can first check your credit score, and then go on to manage your finances to improve your credit score as a whole.