When was the last time you checked your credit history? This vitally important information can seriously affect many aspects of your financial life, from your ability to get a smartphone contract to obtaining a mortgage.
Every time you apply to borrow money, the lender will run a search on you to try and determine how likely it is that you'll be able to repay them. This information is held by credit reporting companies including Experian, Equifax and CallCredit in the form of a credit report.
The report is a summary of credit accounts you’ve had during the past six years and can include details of any credit cards, loans, mortgages, overdrafts, phone contracts and utilities such as gas, electricity and water. It will show your total debts and how much of your available credit you're using as well as any instances of late or missed payments and county court judgements (CCJs). Your report also tracks the home addresses you have given and whether you’re on the Electoral Register.
The report determines the credit score each lender gives you, which is used when deciding whether to allow you to borrow money, how much you can borrow, and at what cost (interest rate). Experian’s own credit score gives users an indication of how lenders may see their credit history on a scale of 0-999, whereby the higher the number, the better. The starting point for someone’s score is not actually zero but somewhere in the middle of the range and the company classes a score of 961 or higher as 'excellent' with the individual representing a very low risk of being unable to repay their debt.
While the credit agency recommends reviewing your information at least once a year and every time you apply for credit, its research has found more than half of UK adults have never bothered to check their credit report. And this is despite the fact that any errors could result in you being refused credit or being charged a higher interest rate. Wrong information contained in your report could even be a sign that your identity has been stolen in order to commit fraud.
If your credit score isn’t up to scratch, the good news is there are simple ways to improve it. Spectator Money asked the experts for their tips. Here’s what they recommend.
Justin Basini, chief executive and co-founder of credit score company ClearScore, says: 'To look after your credit score, you need to first get a full picture of your finances. To do this, you can check in with all three UK credit reference agencies – that’s Equifax, Experian and Callcredit. Different credit agencies may have different information about you, which is why you should look at all three. This is especially true before an important application such as a credit card, loan or mortgage.
'I would urge everyone to take the time to check it carefully, especially for missing payments which can often come back to trip people up. They seem harmless at the time but they can come back to haunt you. The consequences of defaulting – even if it’s just a small amount – could mean that you miss out on your ideal, mortgage, loan or, in extreme cases, job.'
And remember, it’s a myth that checking your own credit report impacts your credit score. You can check as often as you like with no impact. It’s making frequent or many applications for credit that can negatively affect your score.
You can check your credit score for free at all three of the credit reference agencies listed above but watch out for their individual terms and conditions because charges can apply for ongoing access to your credit report.
If you spot an error, The Money Advice Service (MAS) says you should challenge it by complaining to the credit agency, which will then have 28 days to remove it or inform you why it doesn’t agree with you. 'During that time the "mistake" will be marked as "disputed information" and lenders aren’t allowed to rely on it when assessing your credit rating,' explains MAS. 'You may also speak directly with the lender you believe responsible for the incorrect entry.'
You can also refresh outdated information by adding a ‘notice of correction’ to your credit report that enables you to explain a change in your circumstances, such as being back in work after a spell of unemployment.
Try to use a smaller percentage of your available credit, advises Basini. 'If you’re always reaching your credit card limit, lenders might see this as potentially risky,' he says. But low ‘utilisation’ of your credit limit is seen as a positive factor, adds James Jones, head of consumer affairs at Experian. He says a monthly credit card balance below 30 per cent of your limit could gain your credit Experian credit score around 90 points but a balance above 90 per cent could lose you more than 50 points.
If you’re not on the Electoral Roll then this may hinder your credit score because lenders need to verify who you are. The Electoral Roll proves you’re definitely living at the address you’ve given. [The voter registration deadline for the 2017 General Election is midnight on 22 May.] Similarly, make sure your name is on some utility accounts. 'If you still pay the named holder for these, but aren’t listed, the credit behaviour associated with these accounts won’t count towards your credit score,' says Basini.
James Jones at Experian says if you’ve linked up your credit report in the past with someone else – for example, by taking out a joint mortgage – and the relationship ends, you need to ask each of the three credit reference agencies for a ‘disassociation’. This can usually be done online.
If you have a poor credit rating, a credit repair card can help improve your future prospects of obtaining further credit. Rachel Springall, finance expert at Moneyfacts.co.uk, says they can help a wide range of people, such as those with little income, who are self-employed and unable to prove a regular income, who either have no credit history or a poor one – and even those with CCJs or who have been turned down for credit in the past. 'This is for the simple reason that you don't need a decent score to be accepted – their whole point is to help you get a better one, and you do that by proving you're a responsible borrower who can pay back what they owe.
'These cards typically offer a low credit limit to start with, which can be increased if a borrower uses the card wisely; the simplicity of credit repair cards could save consumers from overspending and help them focus on repaying what they borrow more quickly. Not only this, but borrowers may be more inclined to repay their debt on a card that charges interest versus an interest-free card that can be forgotten about for many months.'
For more information about how these cards work and a list of the best deals currently available, click here.
Laura Whitcombe is knowledge and product editor at ThisisMoney.co.uk.