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moneyhelpline's guide to credit scoring

A guide to

by Nevena Mulyachka

Last updated: 01/12/2016

Credit scoring is used to predict your likely behaviour so that insurance companies and lenders can decide whether or not to take you on. It not only decides what products you might receive, but also how good the ones you get actually are.

For example, with credit cards, the APR rates quoted are only ‘representative’, meaning that lenders only have to give their best quoted rates to the majority of their applicants which they pick based on credit scoring.

Your credit score is not universal – different lenders would score you differently. So if you get a rejection from one lender, that doesn’t automatically mean you will be rejected by all.

Why am I being rejected?

If you’re being rejected, it could be due to bad credit history or not enough credit history.
It could happen though that your credit file has errors on it, so it is a good idea to check it on a regular basis – maybe once a year, or before you make a big application.

There are 3 main credit referencing agencies – Experian, Equifax and Callcredit and your score can differ between them. The lender will be able to tell you which agency they used to get your score.

When you check your file, look out for any products that are not yours, wrong defaults or old information which could harm your score. If you spot any, inform the credit agency immediately to have them corrected. Also, check if the same error appears on the other agency’s files.

If the agency refuses to amend your file you’re entitled to add your own comments and while your credit applications may take longer, you may be able to obtain better deals.

Don’t worry too much if you get rejected the first time, even good risks might be rejected simply because the bank doesn’t expect them to bring in any profit.

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8 tips to boost your credit score

!50 imageGet on the electoral roll

It’s unlikely you’ll get any credit without this, even if you have a perfect credit record. If you are not eligible to vote in the UK (non-Commonwealth and non-EU citizens), you can send a proof of residency to the credit agencies which will be added to your file. This can be in the form of utility bills, UK driving license, etc.

!50 image Don't apply too much

Don’t apply for too many credit cards at once, and don’t constantly switch between them. Since every credit card has a credit score impact, space out your applications and pay off your debts on them before applying for more. The same applies to other loans and insurances.

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Cancel old accounts and keep the good stuff

Cancel unused credit cards, insurance contracts, etc. as too many of these will lower your available credit. Keep those long-standing bank accounts with good credit histories open as they can benefit your credit score.

!50 image Pay off expensive debt

Consider paying off your expensive debts with your savings to save on paying large amounts of interest and reduce the amount of outstanding debt you owe (info that lenders have access to).

!50 image Do a soft search

When looking for a quote, ask for lenders to do ‘soft searches’ or ‘quotation searches’ rather than a ‘credit search’ as these will not have a negative impact on your credit score. Otherwise, applying for a product will put the search on your credit file.

!50 image Get the right credit card

Build a good score by getting the right sort of credit card, operating it perfectly and never missing a payment. If you’re in difficulty over meeting your payments, contact your lender about setting up a new repayment schedule rather than defaulting as this will hurt your credit score less. Compare credit cards for credit builders

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 Get the details right

Make sure all the addresses listed on your accounts are correct (this can be a problem with old phone contracts). You can also put your landline down rather than your mobile number - this could make you look more stable to lenders.

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Get the order right

We’ve heard from insiders that if you’re building your credit history, normally the best way to go is first get a credit card, then an overdraft, then a mortgage. This will help build your credit score over time.

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These guides are for informational purposes only and do not constitute advice. For best personal advice contact a financial adviser.

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