Remember Friday’s Streetwise warning to avoid these ‘clean up your credit rating’ ads? Lots of you have emailed for further advice on how to do that just that. First things first, a quick explanation of how the credit system works.
Lenders judge each application for finance on the basis of an internal credit score and an external credit check. With a credit score, the lender has various criteria and will give marks to your answers in relation to these. As a basic example, owning your own home usually gets a higher mark than if you are a tenant.
With a credit check, the lender will ask a credit reference agency about you. The agency will hold details on your financial history and how much you have borrowed, whether you have repaid it on time and in full and have any late payments, defaults or county court judgements.
Improving Your Score
A lender wants to get the capital and the interest paid back on time and in full. As such, they are looking for stability and reliability from a borrower. Although you should always be truthful, the more ‘reliability’ and ‘stability’ you can get into your answers – employed rather than self employed, long-term home-owner rather than short-term tenant etc – the better your chances of approval.
It’s also worth thinking about the finance you are asking for. All lenders are different and one will credit score differently from another. But most will have a higher credit scoring system for their most competitive products. In effect, they will cherry-pick only the most reliable borrowers.
Those rates that are less competitive – higher rates and fees – may have a slightly lower credit score and you may have a better chance of passing in these circumstances. Accept slightly less than the best and you may succeed.
Clean Up Your File
If you pass the credit score, a credit search will be conducted by the lender at a credit reference agency; typically Experian or Equifax at www.experian.co.uk and www.equifax.co.uk. What they want to see is how that ‘stability’ and ‘reliability’ are turning out in practice – do you manage your money responsibly and make payments in full and on time?
The more negatives you have – late payments, defaults, county court judgements etc – the more likely it is that they will turn you down. You need to be seen to meet your obligations, especially these days when even the slightest blemish can lead to a rejection.
You can go to the Experian and Equifax sites to see what the lenders will see. A lender will want to see from the file that; you exist (so make sure you are on the electoral roll); you have credit (an unknown is worse than someone with spotty credit); that you handle your repayments well (so don’t overborrow).
Do’s & Don’t’s
There are various other tips and tactics offered by those in the credit industry. As an over-riding tip, do try, wherever possible, to make it sound as though you are going for ‘positive’ rather than ‘negative’ borrowings. A loan to develop a business idea is positive, to stay afloat is negative.
Try not to have borrowings, such as on credit cards, that are all close to or at their limits. Multiple applications for credit at the same time also convey a negative image. Of key concern, try to keep payments all up to date; if you have fallen behind, it’s important that you catch up – when you do, you can ask lenders if they will correct your past credit record. Most will not, but one or two have been known to do so.
Don’t let negative information just sit there – add a notice of correction (the bumph provided by Equifax and Experian tells you how to do this) explaining the reasons why and why the matter has now been resolved. Want to know more? We’ll have a follow-up article towards the end of the week.
Would You Credit It?