With the government’s new Help to Buy scheme launched, more people are going to be looking for a mortgage, yet a hidden problem for many is ‘credit scoring’. Whether it’s a mortgage, credit card, car insurance or mobile phone contract you’re applying for – your credit score is now the crucial factor to whether the “computer says no.” Our Money Saving Expert Martin Lewis is here to show you how to make your credit more attractive.
What is credit scoring?
Lenders 'credit check' you to predict your likely behaviour – but each lender’s scoring systems are never published and differ depending on both the lender and the product. So just because one company rejects you, it doesn't automatically mean another will.
A credit check doesn't just dictate what products you'll receive, but also how good the ones you actually get are. For example, most loan rates are 'representative', meaning lenders only have to give 51% of accepted applicants the advertised rate. The rest are usually designated poorer credit scorers and given a worse deal.
This is why managing your credit worthiness is crucial.
Universal credit 'ratings' and 'blacklists' DON'T exist
You DON'T have a universal credit rating, and ‘blacklists’ don’t exist. Each lender runs its own scoring system to assess if you're a good risk and whether it can make money out of you. It's not universal, one lender may decide yes, while another says no.
As well as looking at your credit reference agency files, banks will also examine key info on your application form, including your salary, as well as any past dealings they've had with you.
How do I improve my credit score?
Improving your credit score is all about making yourself more attractive. Getting accepted is like going on the pull, small cosmetic changes can help; but different lenders, like people, find different things attractive. The following tips often help, both for how they score you and to prevent a fraud red flag:
Get on the electoral roll. If you're not on it, it's unlikely you'll get any credit, so sign up immediately via About My Vote.
Space applications. Too many too close looks desperate.
Stability's good. If possible, put a landline, not mobile, on applications.
Be consistent. Keep personal info the same between applications.
Close unused cards.Old, unused cards can be a fraud risk. Close 'em.
Sort address errors.Ensure all accounts show the same address.
Never miss repayments, use a direct debit to help – or it really hits your score.
Joint mortgages and bank accounts (not credit cards) financially link your credit history, be careful.
Problems stay on your file six years. If you can hold until gone, great.
Applications stay on file one year. If you've lots, don't apply until wiped.
What if I don’t have a credit history?
Credit scoring tries to predict your behaviour. If you've no credit history, it's more difficult for lenders to do this, so you're more likely to be rejected. Therefore, both for those with poor and no credit histories, you need to build a good one.
Bizarrely, and somewhat counter-logically one of the best ways to do this is by getting the right sort of credit card. Do that, then use it well, and you can start to build up behaviour that makes you look more attractive to lenders.
The key is to get one, spend say £50 a month on it, then always repay IN FULL by direct debit so there’s no interest cost. Do that, and after six months it starts to have an impact.
Of course for many with a poor history, getting a card is tough – but special ‘poor credit cards’ are available from the likes of Barclaycard, Capital One or Aqua. Their APRs can be hideous, even above 50%, but provided you’re repaying in full that won’t touch you. See Martin’s full Best 'Poor Credit' Credit Cards rundown.
Get PAID £17 to check your file
While your credit file isn’t the be all and end all of applications – errors on there can kibosh applications. So check files at each of the agencies Equifax, Experian and CallCredit annually and before big applications such as a mortgage. While you've a legal right to check your file for £2, there's a trick to do it for free and get a better laid out one too.
Both Equifax and Experian offer free month trials of their outrageously expensive and not necessary for most £120 a year-ish credit monitoring services. Yet just sign up, get your info and credit file, then cancel and it is truly free. You can even go through cashback websites and get paid up to £9/credit check for doing the trial.