If you are looking to borrow money it’s important to make sure your credit score is in a good shape.
Whether applying for a Hire Purchase Car Loan with We Finance any Car or looking to get on the housing ladder, a poor credit rating could mean you’re charged a higher interest rate, given a smaller credit limit or, at worst, rejected outright.
It’s not just finance lenders who look at your credit file. Fancy a new Phone? Your credit file could be something shops check before agreeing to a mobile contract. Or perhaps it’s insurance you’re after. Again, your rating could come under scrutiny before a policy is offered.
A little-known fact is that your credit score can even affect some existing loans. Some lenders review their customers on a regular basis to see if their credit scores have changed and, as a result, their risk status has increased. Despite the fact you may have always paid promptly and are a shining example of good custom, it won’t necessarily stop them from looking at your credit file and adjusting their interest rates accordingly.
There are a few tried and tested ways of improving your credit score. Despite the fact that credit history, by its very nature, covers a long period of payments, you can take little steps from today to get it back on track.
What is a credit score?
It’s a number determined by information held on your credit report that lenders use to gauge how likely it is they’ll be repaid on time if they decide to lend to you. The higher the figure the better – it means you’ll have access to more favourable terms on the money you borrow, which, in turn, will save you cash in the long-run.
The mathematical algorithm that gives lenders your credit score is based on your payment history of the last six years, at least, but especially recent patterns. As well as tracking the obvious stuff like missed payments on loans and credit cards or utility company debts, your credit report will also contain details of people you’re financially linked to (joint loans, etc), overdrafts on current accounts, how often you apply for new credit, and even if you’ve been victim of identity fraud. More general details include whether you’re on the electoral role, plus current and previous addresses. It doesn’t include student loans, council tax arrears or parking/driving fines – although some lenders may ask for this information separately when you apply.
Note that your credit score can vary from lender to lender – it depends what information they choose to focus on to assess your suitability as a potential borrower. So, don’t be disheartened if you’re rejected by the first one.
Make Payments on time!
This probably has the biggest impact on future credit success. Don’t worry too much if you’ve missed payments in the past – although they’ll appear on your report, it’s the defaults in the last 12 months that will most concern lenders.
One way to avoid this is to set up minimum repayments by direct debit so you’ll never miss one or be late. But it’s not just credit card bills or loans that you’ll need to keep on top of – phone bills, rent and utilities should also be dealt with on time so set a calendar reminder or sign up for automatic payments.
Join the electoral roll
Don’t wait for reminders at election time to get registered – signing up today at gov.uk will positively impact your credit score if you’re not already on the electoral roll. You’ll need your National Insurance number to hand, and then it’s simply a case of following the instructions online.
Why is registration so important? It allows lenders to quickly and easily prove you’re who you say you are. Even when it’s not a direct factor in scoring your risk, it might delay your application if lenders want to use the information to verify your address and ID. And, of course, if you’re eligible or meet the conditions to register to vote, then you’re legally obliged to register – or risk being fined.
If you aren’t eligible to vote in the UK, you can still help your cause by sending all three CRAs proof of residency and asking them to add this to your report. A copy of a recent utility bill or your driving licence should do the job.
Avoid leaving a footprint
Whether you’re accepted for a loan or not, applying for one leaves a record on your credit report that can negatively impact on your score. These ‘hard inquiries’, as they’re known, remain on your credit report for two years.
You can still shop around without leaving a financial footprint by asking lenders for a ‘quotation search’ instead. They’ll still be searching your credit record, and you’ll still find out whether you’re eligible for money and receive a quote, but it won’t affect your rating in future as other lenders won’t see it.
Get a good balance
Something else which can impact on your credit score is your credit utilisation ratio and credit card closing balance. Credit utilization ratio gives lenders an idea of how much of your available credit limit you actually use. For example, if you’ve got two credit cards with a combined maximum limit of £4,000, used £2,000 of your available credit and repaid only the minimum amount of 3%, your credit utilisation will be 47%.
Your closing balance is your previous balance minus what you’ve paid off, plus any additional purchases you have made since. Ideally, you want to pay off your balance in full each month, if not possible the lower the balance left to pay the better, as far as lenders are concerned. Typically, 25% or less leftover to pay will be judged favourably. It may be worth keeping some credit cards open – providing doing so doesn’t cost you any money – as your ratio will be improved by the fact you’ve got a bigger credit limit but aren’t tempted to dip into it.
Apply now with We Finance Any Car with no impact on your credit score and get a decision in minutes.