How to improve your credit score to help get a mortgage
Interior feature for Living ETC, shot by Jake Curtis
If you are thinking about buying a home or borrowing money, a good credit rating can be the difference between getting a good deal and a bad one. Having a high credit score can allow you access to lower-interest-rate loans and mortgages, as well as give you the eligibility to borrow more.
What is a credit rating
A credit rating is formed from information gaged off of your credit history, this information is held in your credit report.
The score you are given can differ between different brokers and is dependent on the criteria used to access your eligibility.
The most recent activity in your credit report will have the highest impact on deciding your score. This is due to brokers being most interested in accessing your current financial situation. This being said, all actions recorded in your credit file over the past 6 years will be seen by brokers and taken into account.
When considering how important your credit score is you must consider that lenders want to lend you money, however they want to be confident you will pay it back as agreed. If you have a "perfect" credit history, lenders will confidently grant you loans and be open to higher amounts. If you have several missed payments and excess outstanding debt, lenders will be much less confident in offering you loans therefore either decline the loan or use precautionary measures such as higher interest rate agreements.
How to check your credit score and history?
The three main credit scoring agencies in the UK and US are:
Equifax
Experian
TransUnion
What is a good credit rating?
How good your credit rating is can vary depending on the lender's judgement.
Generally speaking, if you have a "good" score with one of the main credit reporting agencies you will have a good rating with the lender.
Below is a "good" score with each of the major agencies:
Transunion: 781 and above
Equifax: 420 and above
Experian 880 and above
How can I improve my credit score?
There are a number of steps you can take to improve your credit rating. Below are some steps you can take:
Register on the Electoral roll
Having your name listed on the electoral roll can have a huge effect on your credit score. This is because it allows lenders to confirm your identity and have confidence that the details you have provided are accurate.
Check mistakes on your file
Having mistakes such as the incorrect address on your file can be detrimental to your credit score. We advise people to double-check their files to ensure all information is correct and up-to-date.
Pay your bills on time
Whether it's a phone bill or credit card payment, it is important to ensure that you pay all bills within the time specified. This is a huge indicator to lenders that you are able to manage your finances.
Check whether you are linked to another person
If a friend or spouse is linked to your credit report via joint accounts it can negatively affect your own credit rating. It is always a good idea to be aware of who has influence over your credit history.
Fraud awareness
Keeping a vigilant eye on your credit history comes with the added benefit of spotting any credit activity that is not you. If not spotted fraudsters can drastically affect your credit rating.
Decrease existing levels of debt
If you are able to get your current borrowing level down or even completely paid off, your credit rating can improve massively.
Stay in one place
If you know you are planning to get a mortgage or loan in upcoming years it is a good idea to avoid moving home too much. Lenders feel more comfortable if they see that you have lived in one location for a considerable period.
Credit Utilisation
Staying well below your credit limit can be seen as positive by lenders. For instance, if you have a £2000 credit card and have a balance of £500, you are utilising 25% of your available credit. If possible stay below 25%. It may even be worthwhile taking out a larger credit card if you, for instance, have a £250 credit card but are utilising £200 worth. This shows despite having access to credit you do not use it to the full extent.