Applying for a mortgage? Before they agree to lend to you, lenders will look at your credit report to see how you manage your money.
Even if you’re not applying for a mortgage, it’s a good idea to stay on top of your credit score.
Credit just means ‘money you borrow’. Your credit report shows how you’ve managed your money in the past: things like your debts, store cards, bill payments… everything you’ve done that’s to do with credit, or borrowing money.
Your credit score (or rating) is that report, summarised in one number.
Here’s how to check and improve your credit score.
- Check your credit report
- Fix mistakes in your report
- Register to vote where you live
- Pay off your debts
- Pay your bills on time
- Cancel credit and store cards you don’t use
- Don’t go over your overdraft limit
- Avoid payday loans if you can
- Don’t take out cash with a credit card
- Check if your credit is linked to someone else’s
- Don’t move home a lot if you don’t need to
- If you don’t have any credit, build some
- If you have bad credit, there’s still hope
Check your credit report
First things first, see what you’re dealing with. You can get a free copy of your credit report from the credit referencing agencies (CRAs) that put them together: Experian, Equifax and TransUnion (formerly Callcredit).
It’s worth getting a report from all three, because they each work things out a little differently, and a ‘good score’ means something different for each one:
- Experian: 880 out of 999
- Equifax: 420 out of 700
- Callcredit: 4 out of 5
Fix mistakes in your report
Once you’ve got a copy of your report, fix any mistakes you see. For example, let’s say your internet provider says you missed a bill that you actually paid. Call them up, and ask them to change that on your record.
Is a company refusing to accept they made a mistake? You can get free support to settle the dispute:
- Financial Ombudsman for problems with financial companies and services like banks, loans, and insurance
- OfCom for problems with media companies: your phone, internet or TV
Register to vote where you live
When you register to vote, your name and address show up on the electoral register – the government’s official list of registered voters in the UK. This reassures lenders about identity fraud: it shows them you are who you say you are, and live where you say you do.
You can register to vote here.
Pay off your debts
This might sound obvious, but if you have debts already, try and pay them off before you apply for new credit. Banks, building societies and credit card companies will think twice about lending you money if you already have significant debts.
Pay your bills on time
Set up direct debits or calendar reminders to remind you to pay your bills, your rent… any regular payment you owe. If you do miss one or more payments though, don’t worry – even the most responsible borrowers make mistakes and it shouldn’t affect your score too much.
Cancel credit and store cards you don’t use
If you have a credit card you use and repay each month, that’s great. It shows lenders you’re a responsible borrower.
But if you have credit or store cards listed on your report that you don’t use anymore, it’s better to cancel them – they might be used for fraud without you noticing, and might also be linked to an old address that then shows up on your report and confuses your address history.
Don’t go over your overdraft limit
Overdrafts are a type of loan, though we may not think of them that way. So going over the limit you agreed with your bank counts against you. Resist!
Avoid payday loans if you can
Sometimes you do have to get a loan to make ends meet and that’s OK here and there. Just be aware that having lots of payday loans on your report might put some lenders off lending you larger amounts of money.
Don’t take out cash with a credit card
Only use debit cards at cash machines. It’s way more expensive to take out cash with a credit card than a debit card, so using a credit card at an ATM makes you look like you’re not good at managing your money.
If you’re stuck on holiday with only your credit card and you need the cash, that’s OK – but do it many times and it’ll count against you.
Check if your credit is linked to someone else’s
If you have a joint account with someone, like a partner or flatmate, that means your credit ratings are linked. And if that person has a bad credit rating, it could pull yours down too. Close any shared accounts you don’t need.
Don’t move home a lot if you don’t need to
This one’s less of a big deal, but generally, the longer you live at the same address, the better it is for your credit rating. That’s because some lenders take moving a lot as a sign you can’t afford to pay the rent.
If you don’t have any credit, build some
Never borrowed any money? Funnily enough, that’s not always a good thing when it comes to your credit report. Lenders want to see proof that you can borrow money and pay it back on time.
One way to build credit is by using a credit card regularly and responsibly, and paying off the balance in full every month.
Check how much your card lets you borrow each month (that’s your ‘credit limit’). Then, if you want to boost your rating even more, try to only spend a portion of that each month. It’s about showing you’re in control of your spending.
If you have bad credit, there’s still hope
It’s not impossible to get a mortgage with bad credit. A few missed bills probably won’t stop you buying a home. If you have something more serious on your record, like a County Court Judgement (CCJ), you might find your choice of lenders is limited, and mortgage interest rates sky high.
But even with a CCJ, hope isn’t lost. Typically, your credit report only shows the last 6 years of your financial activity. So if you’re patient, and build up good credit in that time, you’ll massively improve your chances of getting a mortgage.