This really is a case of prevention being the best remedy. By the time you realise that having a good credit score might be a wise course of action, it may already be too late. But don’t worry, we will show you how to improve your credit score. Then you can recover from any mistakes you may have made in your financial life and get back on an even keel.
Credit Scoring – Background
Credit scoring as we know it began in 1989 in America with the launch of the FICO score. Designed by Messrs Fair and Isaac in the 1950s they had been trying to make inroads into the companies who granted credit in the States by asking them to report back on their customers. Out of 50 companies originally approached only 1 responded. It was not to be its time back then.
As more companies agreed to report back on whether their trade customers were paying their bills, it became possible to assign a value to each customer.
Your score would be made by people touring shops and places where credit was advanced asking for your payment history (obviously this was before data protection became a thing). If the shop owner could remember who you were and whether or not you’d paid that month, a credit score could be produced and assigned to you. And that was the beginning of the credit scoring system.
Fast forward 29 years and algorithms have replaced human intuition in the system. Credit scoring is now routinely used for consumer credit not just for trade customers as it was in the beginning. Credit scoring is now used to base decisions on whether to lend you money or for prospective employers to assess your employability or even dating platforms who match you by credit score – the perfect materialist match surely?
The Modern Era
Credit scoring is one of the building blocks of the consumer economy. Along with GDP measurements and the unemployment rate it is one of those vastly significant numbers we hear a lot about. And it’s ours for life, whether we like it or not.
It is now used to answer several questions about you. They all depend on the answers you give on the form. Remember, whatever you may have done, as far as the company you are applying to are concerned you are a blank slate. All they know about you is what you’ve answered on their form.
To Lend or Not To Lend?
Their job now is to find out as much as they can about you in order to make the decision to lend or not. Therefore, the questions answered by a credit score are: should we lend to this person? How much will we lend this person? What rate shall we charge this person?
The riskier you appear to be, the less money will be advanced at a higher rate. It’s all about the apparent risk you present as a borrower to the company looking to lend you money. The more stable and reliable you appear to be will affect how much and at what rate you will be lent to. For example, If you’ve moved house 5 times in the last 6 years and had 4 jobs in 3 years don’t expect to be given much in the way of credit limits or high value loans.
If you’ve been in the same job since leaving school, have lived in the same house for at least 3 years and have made the payments on any credit you’ve been given in the meantime, then there’s every chance you will get what you’re looking for. Especially if you can meet the next test of loan worthiness and that’s affordability.
How It Works
Credit information stays on your file for 6 years. After that period it should be expunged from the record. There are 3 main credit reference companies in the UK and they are Call Credit, Experian and Equifax. You can click on their name to be taken to their respective sites and their credit scoring page.
Unsurprisingly the credit reference agencies lend most weight in their scoring process to the most recent information they can find. The actual algorithms and scoring techniques are a closely guarded secret but we can make some generalisations from freely available information.
For instance the FICO scoring system consists of the following components in weight order: 35% (of your credit score) comes from your payment history, 30% from monies currently owed, 15% length of credit terms, 10% the type of credit you’ve got and the final 10% any new credit on your file. We would expect our UK agencies to be roughly the same as the above. A good credit score with Call Credit is 4/5, with Equifax its 420/700 and with Experian 880/999.
Information, Information
The type of information stored about you on a credit file will be things you have previously put on application forms for other types of credit or mobile phones. Plus any pertinent information other financial institutions deem legal and relevant to hold about you. So, things you will see on your credit report should you wish to pay £2 to get your statutory report, will include your name and addresses going back 6 years. Searches by other finance companies.
Any financial links to other people you may have at your address. How much money you owe and to who. Any missed payments from any agreements you have as well as any County Court Judgements, IVAs or Debt Management Plans you may have incurred. Lastly, whether or not you are on the electoral roll.
Things not included in any credit search will be how much money you earn. Any student loans you may have. Your medical history. Whether or not you have a criminal record. Your council tax payment history and any parking fines you might have.
Things You Can Do To Improve Your Credit Score
Remembering the thing lenders like most are steady, reliable people, one of the first things you can do if you haven’t already is to get your name on the electoral roll. Using the old ‘I’m not into politics’ excuse just doesn’t cut it anymore. If you’re not on the register then the question has to be ‘why not?’ and the answer usually isn’t the one they’re after.
Spend £2 and get your report then check through it diligently for mistakes. If you find one, write to the credit reference company and explain why you think they’ve made a mistake. They then have 28 days to either remove the error or tell you why they’re not going to.
Pay your bills on time.
Check for fraudulent activity like credit being incorrectly issued in your name. Tell the agency immediately.
If you don’t have a home phone number – get one. It makes you look like your there for a while.
Don’t appear desperate.
Use companies that do ‘soft searches’ which don’t leave footprints on your credit file. No lender wants a customer who looks like they’re trying to get a loan from everyone and anyone. They look desperate (see above).
Buy a pipe, slippers and a cardigan – you will instantly look more stable and reliable just no one will be able to see it.
Don’t lie on the forms. You will most likely be caught out and that will be the end of your loan hunting experience.
And Finally….
Credit scoring is a modern day necessity. Once the consumer credit market exploded and people were able to get almost anything on credit it became necessary to have a system of reporting that was fair and accurate. Most things mentioned in this article you can do yourself. There’s no need to pay someone to ‘repair your credit file’ when you can do it yourself for free.
Best Practices
When it comes to your credit report, honesty is definitely the best policy. If you’ve made mistakes in the past, you’re in good company, we all have. It doesn’t mean you will be side lined for ever and never able to buy a car or fridge again.
Remember, we can help with a Personal Loan or Short Term loan if need be.
Keep making your repayments and remember if you get into difficulty, tell the lender. The last thing they want to do is take you to court. It costs money and doesn’t look good so everyone will try to find a way to help you if you ask for it.
If you are already struggling and need help then go here and let them help you.
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Thank-you for reading.
