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Ten ways to improve your credit profile
Boosting your credit score is a bit like going on the pull. Contrary to the myth that each of us has a credit rating, or may reside on a blacklist, actually each lender has its own bespoke scoring system to decide who it lends to.
This means there’s no one fixed route to credit attractiveness. Instead, it's about using a series of tricks which will hopefully make you more fanciable when applying. Yet beauty firmly still remains in the eye of the beholder.
Since the crunch started five years ago, our credit worthiness has become ever more important. Not just for the obvious mortgage and credit card applications, but for car insurance, energy or mobile contracts too.
And it's not just about acceptability. These days most products are rated for risk, which means those with a good score get better deals. So it's crucially important to rouge up your cheeks or grow your designer stubble, and aim to improve your credit profile. Here are my top ten tips.
1. It's about profit, not risk.
Credit scoring's aim is to assess whether you’ll be a profitable customer. Note I'm not saying risk, but profit, ie, will you make them money. Of course, for most companies, a bad risk isn’t profitable, so you’re out. But it's about far more than that, which is why even if you’ve a blemishless credit history, you can be rejected.
They assess how good a customer you’re likely to be by attempting to predict your future behaviour. The more they know about you, and the better that behaviour, the better chance you’ve got. Therefore:
a) Time applications. Too many in a short space of time looks desperate.
b) Stability's good. Put your landline, not your mobile, on applications.
c) Prioritise. Get key ones first, eg, a mortgage before a mobile contract.
d) Get on the electoral roll. If you're not, getting credit's tough.
e) Issues wipe after six years. If you've past problems and are close, wait.
2. Check your credit file
Errors can kibosh applications, so check files annually and before big applications. You've a legal right to see your file for £2 at Equifax.co.uk , Experian.co.uk or Callcredit.co.uk . Or for an easy trick to get it for free, see www.moneysavingexpert.com/creditrating
3. Bizarrely, getting a credit card can rebuild your credit rating
A key to (re)building credit worthiness is to prove you can behave well. Therefore, almost perversely, the best way to do this is to get a credit card, spend on it each month and never miss a repayment. Plus to protect your own pocket, always repay in full by direct debit, so there’s no interest.
4. The best poor credit scorers' credit cards – earn £100 cashback
Of course, the problem for many poor scorers is getting a card to (re)build their score with. Thankfully, right now, there’s even a cashback credit card (one that pays you to spend on it) available to poorer scorers.
Aqua Reward pays big 3% cashback and even allows some with CCJs/defaults (if over a year old) can get it. If you can't get Aqua, the perkless Capital One Classic accepts some with recent CCJs and defaults, or made bankrupt over 12 mths ago. Though both are a horrid 34.9% representative APR if you don’t repay in full.
The 'if all else fails' options require you to shell out, so it's touch and go if it's worth it. Capital One's Secured Card needs a £49 or £200 deposit for a £200 credit limit. It's 34.9% rep APR, so always FULLY repay. Once your credit's improved, close the card and your deposit's returned.
Or pay the Cashplus Credit Builder prepaid card monthly (total £65/yr), and it reports payments to credit reference agents. After a year, it counts as a fully paid loan agreement.
5. Marriage doesn't hurt, but joint finances do
If people are credit-linked, one person's file can affect the other's application. This ain't about marriage, co-habiting or holding hands. Linkage comes from having a joint mortgage or bank account, but not credit cards, as they're 'second cardholders'.
So avoid joint products if you're in a relationship with someone who has credit issues. If you separate from a partner and are no longer linked, write to the credit reference agencies and ask for a 'notice of disassociation'.
6. Don't shell out to find your 'credit score '
Each lender scores you based on its own secret, unpublished algorithm assessing. They don't just look at your file, but any past dealings with you, as well as your application form. So buying a score just based on your files is not that relevant. If you get it free, great – but I wouldn't pay for it.
7. Shift debts
Cutting the cost of existing debt means repayments clear more actual debt, instead of just covering interest – helping your score. The easy way to cut the cost of debt is to do a balance transfer. This is where you get a new card that pays off the debts on existing cards for you, so you owe the new card the money at a cheaper rate. Right now, up to 22months 0% is available or you can lock in at 5.9% for life (with fees). Full info on how to choose and the best deals at www.moneysavingexpert.com/balancetransfers
8. Repay by direct debit, even if the amount varies
To protect your credit score, never miss repayments on anything – it hurts your score. With cards, if you can't always fully repay, for safety set up a direct debit to cover the monthly minimum. Yet as that’ll hardly touch your debts, always try to manually repay more on top.
9. Small address errors can mean big problems
When checking through your credit file, ensure all active accounts and bills are for your current address (or close them). I once heard of an old non-cancelled mobile bill listed at the wrong address scuppering a lady's mortgage application.
10. Close unused credit cards
Too much available credit adds to the risk and lenders don't like it, so cancel unused cards. Yet if you've other card debts, first call and ask if it'll let you shift debts to it cheaply – protecting your score by avoiding new applications.