Getting knocked back for credit is inconvenient and potentially embarrassing too. Whether you are accepted for a new credit card or mortgage depends in a large part on your credit score. If your credit score could be better, then here are our top tips about steps you can take to improve matters.
1 – Get your credit report
Sign up for one of the many apps which let you look at your credit score and understand how it is calculated and track how it changes over time.
2 – Understand what lenders are looking for
Obviously in general terms, lenders want to deal with people who are going to pay them back. But some lenders specialise in different segments of the market, and you can maximise your chances of success by choosing to apply to a company which markets itself to people just like you.
3 – Get on the electoral roll
One of the first checks any lender does is to verify your address details. If you’re not registered to vote they are unable to do this and are very likely to reject you. You don’t need to wait for an upcoming election to register; it can be done free of charge at any time through the government website.
4 – Before you apply, check
Rather than crossing your fingers and hoping for the best, always look at your credit score before you apply for a loan or a mortgage. Make sure there are no glaring errors and if there are, ask to have them corrected.
5 – Always make payments on time
Defaults or missed payments are the most damaging thing you can do to your credit score, with missed payments in the last year having the worst effect. Consider setting up a direct debit to make payments automatically if you’re the kind of person who forgets. If you’re in financial trouble, speak to your lender and try to negotiate reduced payments.
6 – Look at who you are financially linked to
If you have a joint account or joint utility bills with partners or flatmates with poor credit scores, this could affect your score too. Keep your finances very separate until the other parties sort themselves out. If you’ve split up from a partner, take steps to separate your finances and tell the credit reference agencies that you have done so.
7 – Soft searches and eligibility calculators
Every time you apply for credit and get rejected; this decreases your credit score a bit more. The lenders perceive this as desperation to access credit. Many sites will offer a “soft search” which means they will estimate your chances of being accepted without a hard application which damages your score.
8 – Use a credit card to build your credit history
Many young people struggle to get credit because they have nothing on their file to help the banks assess how risky they are. Get a basic credit card with a low limit and spend just £50 or £100 on it each month, and pay it off in full. You won’t pay any interest and are proving that you’re a good risk. Payday loans companies will say they can do the same thing, but these are seen as an example of poor money-management from the finance industry.
9 – Time your applications
If you know you’re likely to switch job, take time off to have a baby or have another change in circumstances, make your applications before that change happens.
10 – Cancel cards you’re not using
If you have store cards you are not using, cancel them rather than leaving the account open without using it. Having access to lots of credit, even if you are not using it, is seen negatively.