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Hints to help you improve your credit rating

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In April 2014 much tighter regulations came into force which means that getting a mortgage is more difficult and certainly more time consuming.

If you’re thinking of applying for a new mortgage these hints could help you achieve a better credit rating to support your case.

What is a Credit Report?

Lenders obtain a credit report from the three credit reference agencies in the UK: CallCredit, Equifax and Experian.

The report consists of information about your past financial behaviour, some of the information will come from banks, building societies and credit card companies from whom you have borrowed or you currently owe money to.

Other facts will come from publicly available sources (such as the electoral register), or are supplied by utility companies.

It is likely to include the following information:

Your name, address and date of birth

Whether you are on the electoral roll at your current address

How much you currently owe lenders

Any late payments on existing or past credit card or loan accounts

Any missed payments on existing or past accounts

Any County Court Judgments (CCJs) made against you;

Whether your home has been repossessed or you have moved away owing money;

Whether you have been declared bankrupt or entered into an Individual Voluntary Arrangement (IVA).

How does a lender calculate a credit score?

Lenders use the information contained in your credit report plus details from your application to determine whether they are prepared to lend to you and if so under what terms (i.e. how much deposit and what interest rate you will pay).

Specifically they will take the personal history contained in your credit report and give relevant items a value, using their own unique formula. Because they have different experiences and expectations different lenders take different factors into consideration and score things differently.

And the same lender may score a mortgage application differently to a credit card.

Check your Credit Report and Correct Any Discrepancies

Make sure that you get copies of the files held on you by all three credit reference agencies – CallCredit, Equifax and Experian because it is unlikely that they will all store identical information.

Under the Consumer Credit Act you have a right to obtain your full statutory credit report at a cost of £2 per credit reference agency and can request this either on line or through the post. (You will need to provide all of the addresses that you have lived at for the past six years plus details of anyone you have a ‘financial association’ with (i.e. your partner if you share a joint financial product like a current account or mortgage)).

Contact details for the three credit reference agencies are as follows:

CallCredit – 0870 060 1414
Consumer Services Team
PO Box 491

Equifax – 0844 335 0550
Equifax Credit File Advice Centre
PO Box 1140

Experian – 0844 481 8000
Customer Support Centre
PO Box 8000
NG80 7WF

Carefully review the report and query in writing with the agency any errors for example different ways of listing your address, duplicate listing of accounts or closed accounts marked as open. Make sure you include an explanation about why it’s wrong, and include any evidence you have.

If you don’t get errors corrected it could harm your ability to get credit later.

The agency has 28 days to act but in the meantime they will mark your credit report as ‘disputed’ so any lender searching your file will know not to rely on that piece of information.

If the credit reference agency doesn’t amend your records, you have a legal right to send it a notice of correction (up to 200 words), which will be added to your file. Use the notice to explain why you think a particular piece of information is wrong and make sure you mention any mitigating circumstances – for example, a sudden bereavement, or late payment of a bill because it was received while you were away on holiday.

Make yourself more attractive to lenders

Ensure that you are on the electoral roll

You will find it very hard to get credit If you are not on the electoral roll so make sure that you are registered (your local authority will contact you once a year prompting you to ensure that anyone eligible to vote in your household is on the electoral roll).

Think before applying for new credit

Making an application for credit will leave a ‘footprint’ on your credit file, which will be visible to other lenders.

If you’ve recently been turned down for credit don’t apply for another credit loan immediately because multiple applications in a short period can suggest that you are in financial difficulty and could ultimately make lenders reluctant to lend to you.

When seeking a mortgage ask lenders for a ‘quotation search’ rather than a credit search. This will avoid a footprint being left on your file and will also give you an idea of whether your application would be accepted and at what rate of interest rate.

Try to avoid applying for credit immediately after moving house or changing your job as lenders like to see evidence of stability so if you anticipate a need to borrow apply for credit before the change if possible.

Close old credit card accounts

If you have several credit cards with high limits lenders will be concerned about your potential to run up large debt leaving you at risk of failing to repay what you owe.  Closing accounts that you don’t intend to use will remove this potential risk and improve your chances of getting a loan.

End financial associations with ex-partners

Although cohabiting with or being married to someone with a bad credit rating won’t affect your rating taking out a joint account or mortgage with them almost certainly will.  Lenders will look at both of your credit reports because your partner’s circumstances could affect your ability to make repayment.

It is very important that you ask all three credit reference agencies to add a ‘notice of disassociation’ to your file to break any jointly held financial product with someone that you no longer have a relationship with.

Pay on time, every time

Lenders look for proof that you’re a reliable and responsible borrower and late or missed repayments stay on your credit report for at least six years. Try to stay within the agreed credit limits, and always make your repayments on time, paying more than the minimum off your credit cards each month if you can.

Reasons why you may have a bad rating

You have failed to stick to the terms of your original credit agreement by missing or paying credit card or loan repayments late.

You have been declared bankrupt; entered into an Individual Voluntary Arrangement (IVA) or had a County Court Judgement (CCJ) made against you.

You consistently pay only the minimum repayment on your credit card each month (many lenders will assume that you are struggling to clear your debts).

Your credit history is very short or non-existent (this makes it difficult for a lender to assess whether or not you are likely to repay what you borrow from them). Somewhat unfairly you may find that you are turned down for market-leading loans even though you could comfortably afford to pay them back.

If you find yourself in financial difficulty with debts that are no longer manageable it is far better to make early contact with your lenders and ask for help than to repeatedly miss repayments with no explanation.

What should I do if I’m refused credit?

Although you have no legal right to be told why you have been refused credit most lenders will give a broad reason – so it is always worth asking.

You can appeal if you feel that you’ve been turned down for credit unfairly also if the decision not to lend to you was made by an automated system you can ask for this to be reviewed.

If you are still unable to get the credit that you applied for do not apply for another loan immediately but do check your credit file and take steps to improve your credit rating before trying to borrow from another lender.

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