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Your credit score is a rating that companies who provide credit facilities, like banks, mobile phone providers and credit card services use to determine whether they are willing to provide you with credit. This can impact on your ability to get a mortgage, a credit card, or even take out finance agreements on anything from cars to electronics.
In the UK, there are three credit reference agencies which will hold a record of your credit history, and which will provide a credit score. Equifax, Experian and TransUnion all calculate credit scores slightly differently. Some of the information they hold on you will be the same, but in some instances, lenders will only provide information to one or two of them. Because of this, you may find that something that appears on one report, doesn’t necessarily appear on others. You might find that this makes your scores from the three agencies slightly different.
It might sound contradictory, but for some people, a low credit score will actually be the result of a total lack of credit history. After all, if you’ve never had a credit agreement, it’s hard to show that you reliably pay money back on time.
If this is the case for you, it is worth investigating whether you are eligible for a credit card – even one with a very low limit is a good start. Once you have obtained a card, you can then benefit from spending a small amount of your normal outgoings on it. It is absolutely critical to ensure that you set up a direct debit to pay this card off in full, every month. This will help you build up a good credit rating, and show lenders that you are reliable. Do not be tempted to spend more than you can afford on the card – this strategy is only beneficial if you pay the card off in full, reliably.
To complicate matters further, each credit application you make leaves a note on your file. If you make a lot of applications in a short space of time, this can impact on your rating. Luckily these records are removed from your file after two years, but it is definitely worth bearing this in mind if you are seeking new credit. Make a couple of applications by all means, but do not overdo it. Do your research online first to pick the best credit card option for you before you make a formal application.
Another very simple step that anyone over the age of 18 can take to improve their credit file is to make sure that they are on the electoral register in the UK. It is a quick and easy process, just use the government website (https://www.gov.uk/register-to-vote) to register online or look for the details of how to register by post.
Some credit providers will automatically reject you unless they can find you on the electoral roll. Registering to vote doesn’t mean that you have to exercise your right to vote, and if you’re concerned about privacy, you can always remove yourself from the open register. That way, you can still be looked up by a credit agency, but you aren’t at risk of your details being bought or sold by commercial companies who use them for marketing purposes.
You can request details of your credit report from the credit agencies. It is really important to spend time carefully checking that they are accurate as any mistakes might be causing you unnecessary problems. This is particularly key if you have ever been a victim of credit card fraud, or other financial crimes. If these are inaccurately reflected on your file, it may be adversely affecting your score.
Even seemingly unimportant mistakes, like a misspelt address, can lead to issues. When you make a credit application (such as the forms you fill in to apply for a credit card), the bank will use these details to cross-check what is on your credit file. If there are any differences, some banks will reject you outright, without necessarily giving you a clear reason. It is therefore important to check every aspect of your credit file to make sure it’s all up to date and correct.
If you choose to take out joint credit with another person (usually a partner or spouse), your credit files will become linked. This means that their credit score will have an impact on yours – this is unfortunately particularly the case if they have bad credit.
To end a financial association, you need to close down any joint credit products you share. You should then also inform the credit reference agencies, which is the only way to ensure that your future credit score will not be impacted by anyone else’s financial behaviour.
If you’ve previously been subject to defaults, County Court Judgements (CCJs) or have declared yourself bankrupt, this will appear on your credit file for six years.
There are some specific exceptions to this – if you pay what you owe for a CCJ in the first 30 days after it is issued, then it will not appear on your file. There are also certain extenuating circumstances, such as illness or redundancy, which credit references agencies may be willing to add as a note on to your file, to explain some of the issues. This may make lenders more willing to accept previous financial behaviour that they would normally consider incompatible with offering you credit.
If you have experienced a CCJ or bankruptcy that has remained on your record, once you reach the end of the six-year period, it is well worth getting in touch with the agencies. You are well within your rights to prompt them to ensure that it is removed from your record at this point. This should help improve your rating, particularly if you are able to display consistent good financial behaviour going forwards.