Six Easy Ways to Improve Your Credit Score
Only one thing seems certain about living through a pandemic: uncertainty! When life changes from day to day, thinking about (or trying to improve) one’s credit score is unlikely to be top of the to-do list – but, in actual fact, there’s no time like the present. So, if you’ve been putting off a deep dive into your personal rating, keep reading!
In this helpful guide, we’ve put together some straightforward steps to credit score success.
What is a Credit Score?
In essence, a credit score is a prediction based on your previous spending history and financial management. It aims to assess your attractiveness as a candidate for a loan – and how likely a lender would be to offer you credit.
Sounds simple, doesn’t it? Sadly it’s a little more complicated than that. To begin with, every lender assesses a candidate differently (and they aren’t exactly up-front about their methods), though their aims are the same: to predict how you’re likely to behave in future. In order to formulate a rating, lenders draw on lots of different data – from a person’s debt history, to how good they’ve been at making payments on time, to how many credit applications they’ve recently made. Once the data has been compiled, it’s fed into a complex algorithsm and a rating is produced.
It’s worth remembering, at this point, that how predictable you are can have a huge impact: so it’s not just about whether there are any red flags, but also how many flags (of any colour) there are! If you don’t have much of a credit ‘footprint’, even if you’ve never missed a payment or gone into debt, this can also act against you – because it’s much harder to predict your future behaviour.
If you’re at all concerned about your credit score, or simply want to stay ahead of the game, here are seven easy things to try:
Improve Your Credit Score, Step 1: Check Your Credit Report At Least Once a Year
Credit reference reports are like a blueprint of your spending activity: they’re a huge source of data and can make or break any future application. In addition – worryingly – mistakes can and do happen. The good news is that everyone is entitled to see their credit report – and we recommend that you do this at least once a year (and certainly before making any applications). You should go through line by line and ensure that every scrap of information is correct.
You can request a report from Channel Islands Data Services, and also from the UK bodies TransUnion (formerly Callcredit), Equifax and Experian. Bear in mind that sometimes credit information is refused by UK credit reference agencies if they’re not aware that you are on a Channel Islands electoral role (see Step 2 below for tips on fixing this issue).
Step 2: Make Sure You’re on the Electoral Roll
It’s harder to get accepted for credit if you aren’t on the electoral roll (so if you aren’t registered to vote, do sign up immediately) – or if lenders don’t realise that you are. Local authorities in Jersey and Guernsey don’t currently provide electoral roll details to credit reference agencies, so you may need to correct this on your report. You’ll need to contact your local parish official and ask them to complete an Electoral Register Confirmation form on your behalf which you can then pass on to the individual CRAs (check the terms for each firm to find out the best way to do this).
Step 3: Always Pay on Time
This might sound like a no-brainer, but the slightest delay can affect your credit score: even missing one or two payments will have a disproportionately large impact (and one that could take years to clear up). Consider setting up direct debit or standing orders for as many payments as possible.
Happily, paying on time is a good way to improve your credit score: and you might even be able to sign up to a scheme to fast-track this process. For example, there are free schemes (such as Experian’s Rental Exchange) that private renters and social housing tenants can enrol in to enhance their credit reports.
Step 4: Delink Your Finances
Untangling finances from a former partner often feels like a painful process, but it’s really important to do – you never know how their credit score could affect your own. Therefore, as soon as things are settled, don’t forget to write to the CRAs and request a note of disassociation.
In fact, generally, it’s a good idea to keep your finances separate. If a partner or flatmate has a poor credit history, and you have a joint financial product (which doesn’t necessarily mean a credit agreement – it could even be a shared account for bills), you may well be ‘co-scored’ with them. This means that, should you wish to apply for credit on an individual basis, their files can also be accessed and assessed whilst the lender decides whether to approve your application.
Step 5: Don’t Use Credit Cards for Cash
Fortunately, withdrawing cash via a credit card isn’t an appealing prospect - largely because interest is so high! But there’s also another reason to avoid this practice, and it concerns your credit score. Whatever the reason for using your credit card in this way, many lenders see it as confirmation of poor financial management – and it may negatively affect your profile. Avoid at all costs.
Step 6: Get to Know Your Lender
A final point, but an important one: for while it’s important to maintain good ‘health’ when it comes to your credit reports and scores, not all lenders view these scores in the same way. At Cherry Godfrey, for example, we take a holistic view of your credit report rather than relying on a number. It’s worth taking the time to find out a bit more about your desired lender, and whether they’ll ask for supplementary information not included on your report (and making sure you have this to hand), before proceeding with your application. You might be surprised how easy it is to get a good deal by providing a little more detail and choosing your lender wisely!