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How to check and improve your credit rating

How to check and improve your credit rating

Your credit rating can hold you back if you are applying for a mortgage or a loan. Money expert Harvey Jones tells how you can check and improve yours.

Should you be concerned?

Credit reports worry people, and understandably so. The notion of mysterious agencies monitoring your financial transactions is a bit creepy, especially since they share their data with lenders when you apply for credit.

Nobody likes to be judged but if you want to borrow money or take out a mobile phone contract, you have no choice. So what’s on your report?


Can you credit it?

Your credit report is a personal history of the credit you have had in the last six years, including mortgages, credit cards, hire-purchase payments and mobile phone contracts. Credit reference agencies Equifax, Experian and Call Credit collect the data but they do not judge it in any way.

Instead, lenders request a copy of your report when you apply for credit, and will assess it against their own lending criteria before deciding whether to grant you finance and how much to charge. Lenders only have to offer their advertised headline rates to 51% of successful applicants, they can charge the rest more if they wish.

If you have had credit problems you may be quoted a higher interest rate or offered a lower credit limit. Or you could be rejected altogether.


Take a look at your credit report

You have the right to see a copy of your credit report for a statutory fee of £2. Order online at Experian.co.uk, Equifax.co.uk and CallCredit.co.uk. This is worth doing, especially if you plan to apply for finance.

This report is only a “one-off snapshot” of your credit status, but it should be enough for most people. Agencies also offer unlimited access to your credit report for a fee of around £15 a month, which isn’t necessary for most people.


Get it right

There is plenty you can do to tidy up your report. First, check you are on the electoral roll, as lenders use this to verify names and addresses. You should also highlight any factual errors and get them corrected.

Sometimes people run into money troubles for good reasons, say, following illness, divorce or redundancy. In this instance, you can add a ‘notice of correction’ to your report explaining the circumstances, which lenders may take into account.


Keep it clean

Even one or two missed payments, say, to your utility supplier, credit card issuer or mobile phone network, could count against you. To avoid damaging your credit rating accidentally, set up direct debits to ensure your regular payments arrive on time.

If you have run up large sums on credit cards and other insecure debts, say, more than £30,000, this could hit your score.

Bizarrely, people who have never borrowed money in their lives can score badly, because there is no credit history to check.

The winners are those who have had, say, a mortgage or credit card and met every repayment without fuss or delay.

If you have a credit card but only use a small amount of your limit, that is also a good sign.

Beware making too many credit applications in a short period as it could indicate you are in dire need. Any credit rejection will show up on your report, making your next application harder.

Borrowing money may be cheaper than ever, but only if your credit history is squeaky clean.