Thursday, 4 February 2016

10 Things School Should Have Taught Us About 'Credit Scores'


Your credit score is what potential lenders use to work out whether they can lend you money. When I was in Uni I didn't really worry about my credit score because I assumed it was for people looking for bank loans or mortgages. I didn't realise that in fact I'd been slowly building up a credit profile since I got my first phone contract at 17. Now, at the grand old age of 25, my credit score is something that I check on a monthly basis because it's so important to me. Thanks for teaching us about photosynthesis Mrs Thomas, but wouldn't it have been a bit more useful to know this stuff...?!

  • Your credit score is checked if you apply for a loan on a car or for a credit card, for example. Did you know it's also checked when you apply for a phone contract, store card, energy provider (the guys who sort your gas and electric bills) or even for your car insurance?
  • There are different types of searches. If you use a price comparison website such as Confused.com or CompareTheMarket.com they will assess your credit score even if you haven't decided to go ahead with any of the quotations. This type of search is called a 'Soft Search' and won't necessarily affect your credit rating but it will leave a 'Search Footprint' on your account. If you perform multiple soft searches in a short space of time this can affect your credit rating negatively.
  • You can use a credit report company such as Experian to find out what your credit score is. I love Experian because your credit report is very simple, very clear and easy to understand. They also have a really great customer service team on hand to help you with any questions; I've phoned up quite a few times and they always have great suggestions when it comes to improving my credit score almost instantly.  
  • A standard credit scoring system (i.e. the likes of Experian) will give you a score based on your salary, your age, how many children you have, your credit account history and how many mobile phone contracts you've had. It requires you to provide all of your past registered addresses and will automatically pull through a list of your past and present credit agreements.
  • Typos affect your credit. If your name is spelled incorrectly on one of your accounts it might count negatively towards your score. Similarly, if your address isn't quite correct on your bank account, for example, that could also be making quite a big impact. Companies such as Experian provide a team of people who you can call to rectify small mistakes like this and you can have your credit score boosted within a few hours in some cases (I did this!).
  • Registering to vote (or more factually NOT registering to vote) has serious impacts on your credit score. The credit report companies use the Electoral Register as proof of name and address. If it can't find your entry or your entry is wrong (name is different etc.) then your score is likely to be much lower than it should be. This is a really easy way of boosting your score quickly; update your information on the Electoral Register! 
  • If you've made an application for credit that has been declined do not immediately go to another company and apply with them. The chances are that the companies use the same credit search agency (there are only a handful of mainstream big players) and not only will you be declined again but you'll have double the negative points stacked against you.
  • If somebody registered to the same address as you has a bad credit score this could impact your own score. Think twice about moving in with people who have a history of late payments or in more serious cases have declared bankruptcy or had CCJs issued to them (a CCJ is a court order issued to somebody who has failed to repay money that they owe). These days this tends to only affect you if your credit is somehow linked to this person (you've shared a joint account with them or been attached to a water bill that they didn't pay for example) but it's something to be aware of.  
  • An account that you haven't used in years could be impacting your credit score today. If you have old store cards that you haven't used in years write to the store and ask them to close your account. Just because you're not using them doesn't mean that they're not still 'active'.
  • A hugely common mistake and something I hear far too often is "I'd rather stay away from credit altogether, I'd rather pay for everything up front". This is great if you don't intend to ever need to borrow a larger sum of money (a loan on a car, or a mortgage for example). However, if your circumstances then change and you have no history of borrowing money and paying it back within the agreed terms you are likely to be rejected for a loan. Even simply spending £50 on a store card and paying it back in full will have a positive impact on your score. Your mobile phone contract will help, but don't shy away from sensible lending thinking that you'll then have no blemishes on your score. When it comes to credit, you don't start off with a perfect score and then lose it: you start off with zero score and have to build it up by borrowing sensibly. 

 
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