Credit building

Introduction

Your credit score is a numerical value calculated using the information held by one, some, or all of the credit reference agencies, Experian, Equifax and Call Credit and is used by lenders to assess your ability to manage credit responsibly. A lending decision could, of course, be made by viewing your individual credit file, but credit scoring allows a simple, quick and objective decision to be made on anyone applying for credit. The credit reference agencies hold information about every adult in the country who is financially active, in the sense that they have some form of credit, such as a mortgage, personal loan or credit card. It is worth remembering that too little credit, as well as too much, can be detrimental to your credit score. If you have no credit history at all, there is no evidence, good or bad, on which to base a lending decision and, if your credit history is limited, you may simply be viewed as unprofitable.

Improving Your Credit Score

One of the first steps that you can take to improve your credit rating is to make sure that you are on the electoral roll. If you are not, because you have recently moved house or for any other reason, you can – if you are eligible to vote in the U.K., of course – write to your local council and ask them to register you. Local councils send out electoral roll forms once a year, but credit reference agencies update their information from the electoral roll once a month, so registering can potentially improve your credit rating very quickly.

Another thing to remember is that, unless you specifically request a quotation, rather than going ahead with an application straight away, every application for a credit product – including, say, a car insurance policy or a mobile phone contract – leaves a “footprint” on your credit file. Too many such footprints in a short space of time is potentially a sign that a borrower is desperate for credit – even if, in reality, it is just a timing issue – and will adversely affect your credit score.

It is advisable to obtain a copy of your credit file from one, or more, of the credit reference agencies (you can do so for a nominal fee), before you make an application for credit. If you find that an application for credit is rejected, rather than applying somewhere else immediately you should ask the lender concerned why it was rejected. Lenders are legally obliged to tell you and, if what they tell you points to something in your credit history you may well, but not necessarily, be rejected by other lenders. If this is the case, applying for further credit may damage your credit score even more, so you may need, instead, to spend some time repairing or creating your credit rating.

Once you have the credit rating – and therefore, hopefully, the credit – that you desire, it is a good idea to check your credit file at least once every 12 months to make sure that all the information contained in it is correct. If there are any errors, you are legally entitled to contact the lender concerned to request that the erroneous information be corrected or removed, as appropriate. All of the credit reference agencies will, for a monthly fee, monitor your credit file for changes – which may be indicative of identity fraud, or other criminal activity – and alert you if any do occur. If you can obtain a credit card, with a competitive APR, or “Annual Percentage Rate” and operate it within its limit and without missing any payments for a period of time, your credit score will start to improve.

If you feel that your debts are spiralling out of control, debt help is available from organisations such as Citizens` Advice Bureau (CAB), Consumer Credit Counselling Service (CCCS) and National Debtline. All three are charitable organisations, so the advice they offer is not only independent and confidential, but also free of charge.