As a parent, I know how difficult it can be managing your family’s finances but at some point there’s a good chance you’re going to want or need to borrow money.
I’ve written this article to help you better understand that process, what a credit score is and how it can be improved, so that you have more sources of credit available to you, at the lowest possible cost.
TOP TIPS FOR MANAGING YOUR CREDIT SCORE.
If you’re in a hurry, this is what you need to know and do, in order to improve your credit score.
• Download your credit reports and check that they are accurate
• Ensure you are on the electoral roll for your current address
• Ensure you make repayments on-time & in full
• Don’t open any new credit facilities
• Regularly review your credit reports
It is important that you manage your credit score by understanding and regularly reviewing your credit reports.
WHAT IS A CREDIT SCORE?
A credit score is a number allocated to you that is calculated based on your credit file. It is one of the main ways in which lenders assess your suitability as a borrower and your creditworthiness.
If you are applying for a mortgage, credit card or loan, your credit score can affect whether you are approved or not and the cost that a lender will charge you.
Typically, the higher a credit score, means the lower the risk to the lender, hence the cost of any borrowing will be lower and potentially the credit limit you are offered will be higher. Therefore, it’s in your best interest to ensure your credit file and score are as accurate as possible.
Unfortunately, there is not one official source of your credit score. Different lenders use different credit reference agencies to make their lending decisions and these agencies use different ways to convey your credit score.
WHERE CAN I FIND MY CREDIT SCORE?
In the UK, there are three main credit reference agencies, who are responsible for collecting, maintaining and reporting consumer credit data.
• Transunion (formerly Callcredit)
These credit reference agencies compile information on how well you manage credit and make your repayments.
Each of them will maintain a credit file on you, to view this information you will need to request a copy of your credit report, which is now free thanks to GDPR.
Your credit report is a summarised version of your credit file and contains history on you as a borrower, including previous credit agreements, personal details such as name & address, repayment history, total amount of credit and the utilisation of these facilities.
Each agency has a different way to summarise this data and a different scoring system. It is important that you request and review your credit file with each of these agencies on an annual basis.
Experian, Equifax & Transunion credit scores all start at zero but that’s where the similarity ends.
An excellent credit score with Experian is over 961, however, for Equifax an excellent score is over 465 and for Transunion it’s over 627.
Transunion also calculates a credit rating, which is between 1 to 5. The credit rating is based on an assessment of your credit worthiness, which primarily is a history of your borrowing and repayments.
5 is the highest credit rating, meaning you are likely to be a the lower credit risk and hence more likely to have your application for credit accepted.
HOW TO GET A COPY OF YOUR CREDIT REPORT.
As mentioned, under the recently introduced GDPR rules, you can request a copy of your credit report, for free, from any of the credit reference agencies.
Each agency provides on-going access to your credit file, some are free and some require a monthly payment.
Transunion, via Noddle, offer free on-going access to your credit file.
(Noddle example report)
Experian & Equifax operate a monthly subscription service, if you would like to access your credit file, on an on-going basis but do offer additional services such as web monitoring and fraud support.
Access to Experian’s credit expert product is £14.99 per month or a whopping £179.88 per year.
(Experian example report)
Equifax are cheaper. Their service is currently priced at £7.95 per month or £95.40 per year.
(Equifax example report)
The first month for both of these services is currently free, after which, if you do not cancel the service, you will be charged.
If you would rather not visit each of the credit reference agencies separately, then you could try using a company called CheckMyFile.
They claim to offer the UK’s only multi agency credit report, which might be a simpler and easier way to check all of your credit reports at once.
However, the first month of the service is free, after which it costs £14.99 per month or £179.88 per year.
WHAT IS A CREDIT FILE?
If you have any credit, such as a loan or credit card, then you will have a credit file.
As mentioned previously, your credit file will list all the credit facilities you currently have available, by type, such as secured borrowing i.e. a mortgage and unsecured borrowing such as a loan. The balances for each these facilities will be recorded, along with their utilisation i.e. how much of the credit you have used.
Your credit file will also contain a historical record of all the repayments made for any credit facilities, utilities bills or mobile phone bills, regardless of whether these have now been closed. It will also contain a record of any delinquent accounts, bankruptcies and county court judgements (CCJ’s).
Finally, your credit file will also list out all of your personal details such as your name, current/previous addresses and any financial associations, (which is anyone with whom you are financial connected with, such as your partner/children).
Therefore, it’s important you review your credit file and ensure all details are accurate and up to date.
HOW CAN I IMPROVE MY CREDIT SCORE?
You need to be proactive in managing your credit score, a higher score means you are seen as a lower risk, and therefore more likely to be approved for credit, at a lower cost.
It’s worth noting that if you regularly check your own credit report, it will not have a negative impact on your credit score.
Improving your credit score will take time, approximately between 6 – 12 months. This is due to the time it takes for updates to be noted on your credit file and because your credit history plays a large part in determining your credit core, which essentially a record of how well you have been managing your financial commitments.
Catapillr’s Top Tips.
The first three tips I have listed below are things you can do immediately, which will have a positive and more immediate impact on your score.
- 1 – Check your credit reports with each agency.
You need to check your credit files, with the various credit agencies and ensure everything is correct. If you notice something inaccurate, then follow the agencies process in order to get it updated.
- 2 – Register on electoral roll.
You need to ensure that for your current address you are on the electoral role. This is quick and easy to do and can be updated on your credit file within a month or two.
- 3 – Review credit facilities.
Another simple and quick way to improve you credit score is to review the credit facilities you have open. Having a large amount of available credit may make lenders think you can’t handle more. So, you may want to close any dormant or unused credit accounts.
- 4 – Low credit utilisation.
Low credit utilisation is seen as a good thing by lenders. For example, if you have a credit card with a £5,000 limit and you have used £2,500, then your utilisation is 50%. Typically, lenders like to see a usage of around 25%.
- 5 – Make consistent repayments.
To build or to ensure you have a good credit history, you need to make regular, consistent repayments, which are on time and in full.
- 6 – Review your credit file regularly.
This sounds simple; it’s easy to do but it does need to be done each year. Make sure you download a copy of your credit reports, check for any new accounts and ensure all of the information in your report remains correct.
To reiterate, managing your credit file is something that needs to be done proactively and on an annual basis.
The credit agencies will help you to understand your credit file and will help you to raise and resolve any queries concerning your credit file.
Remember that the better your credit score, the more likely you are to get credit at a lower cost.
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