Credit reports compile data about you as an individual, which help to determine your credit score. This is then used, alongside other measures such as affordability, to help lenders decide who to lend to and more importantly, which rate you’re offered. So taking steps to improve your credit score as much as you can, makes good sense.
With the country slowly adjusting to the new normal, many finance customers are in danger of paying more for future finance because of the damage COVID has done to credit scores, new research has found.
Credit report website, Credit Karma UK has suggested that people could find their credit scores affected as they utilise more short-term lending, applying for more products or default on credit agreements when payment holidays end simply due to oversight.
We've put together some practical money-related tips to help you protect your credit rating.
Check your credit report
Before you take steps to improve your credit score, you first need to know what your score is. There are plenty of free credit score websites such as Clear Score, Experian and Credit Karma UK which are quick and easy to use.
These provide a summary of credit cards, loans and outstanding debt attached to you, any linked addresses and people you are financially connected with (e.g joint mortgage). Check all of these on a regular basis to ensure your information is correct and if there are any errors, you can apply to get these amended.
Did you know? – Since the new GDPR law came into effect in May 2018, it’s now free to check your credit report through Equifax, Experian and TransUnion.
Make sure you’re on the electoral register
Lenders and credit reference agencies often use the electoral roll to verify your identity and address. If you’re not on the electoral register, this could affect any credit applications you make so it might be worth checking via the Direct Gov website to see if you’re registered.
If you aren't eligible to vote in the UK (mainly non-Commonwealth and non-EU foreign nationals), you can send all three credit reference agencies proof of residency (utility bills, a UK driving licence, etc) and ask them to add a note to your files, which should help you get credit.
Pay your bills on time
This might be an obvious one but any missed payments regardless of how small can affect your rating and make you look less attractive to lenders.
An easy way to keep on top of your payments is by direct debit, so even if you’re just paying the minimum, you’ll never be late or miss. However, it’s important to bear in mind that you should always top up your minimum monthly payment whenever you can – you’ll clear your balance quicker and pay less interest in the long run.
Top tip - If you’re facing financial difficulties, it’s always recommended to speak with your lender as soon as you can. More often than not they can help by changing your payment schedule or work out a new payment plan to get you back on track.
If your payment holiday is coming to an end, now’s the time to ensure that your direct debits are reinstated (if you cancel them) and that you’re able to make the repayments. Your credit provider will usually contact you in advance to give you notice, but if they don’t, it is important you are able to make the payments when they are due, as any delay could affect your credit score.
Check addresses on old accounts
It may sound strange but if you have any old mobile phone contracts or credit cards you no longer use but are still technically active then it’s worth checking if the associated address is your current one.
If the account is still listed as open but it’s your old address, then this can impact your credit score with some people even being declined a mortgage because of this. So have a sort through all your old accounts to make sure they are either up to date or closed.
Previous relationships affect your credit score
Whether it’s a partner, spouse or even flatmate, it’s best to keep your finances separate. Being financially associated with someone else can potentially harm your score especially if they have a poor credit history.
If your relationship ends with someone you share joint finances with then make sure to inform the credit reference agencies and request a notice of disassociation as soon as your finances are no longer linked.
Don’t withdraw cash on a credit card
This is a simple one. Not only is it expensive to withdraw cash from a credit card but it also gives the impression to future credit lenders that you have bad money management - just don’t do it!
The only exception to this rule is if you’re using a specialist credit card for withdrawals abroad as these products tend to have different terms and conditions.
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