The words ‘credit score’ and ‘credit report’ have firmly entered our financial lexicon ever since the advent of cheap and easy-to-apply for credit in the late 1990’s to the credit crunch in the late noughties. Obtaining credit, whether you are a high or low-income earner is now dependent on these two terms.
It is not as simple as stating that if you are a part of a low household income, then you won’t get credit, as many wealthier individuals still suffer from lack of obtaining credit.
If your credit score is blocking you from obtaining credit, what has occurred in your financial history that is impacting this?
If you wish to bolster your credit score, here’s a summary of five well-known reasons that prevent people from having a good credit report.
1. You have too much outstanding debt
If you have debts that are unpaid, or worse, a history of missed payday loan repayments or a county court judgement (CCJ) – then these will be listed on your credit score for all lenders to view. Whilst there may be valid reasons for you to miss those payments or have a CCJ or been declared bankrupt; to a lender, this merely indicates that you are financially stretched and not in an excellent position to repay any further credit borrowed.
The aim here is to determine a plan to get back on track and reduce the amount of debt you owe other creditors. Whilst it can take several months for any improvements to show on your credit report and boost your score, ultimately this will demonstrate to future lenders that you can control the amount of credit you borrow and improve your chances to contain more in the future.
2. You’ve applied for too much credit within a short period
If you have applied for a lot of credit within a short period, each search will be listed on your credit score. The more you attempt to apply, and are subsequently rejected, your credit score will take a hammering. For lenders, this appears as desperate, and you may be covering up for a debt that is not listed with a specific credit reference agency.
If you require credit, then search for lenders who do a “soft search” that will not be listed on your credit score. If these lenders reject you, then best to avoid applying for credit until your rating has been boosted, alternatively, stagger your credit applications and check your credit report before applying again, the likelihood of being accepted will be improved.
3. You’re not on the electoral register
Registering on the electoral register is not only a pre-requisite to voting, but it’s also vital for boosting your credit score. Enabling lenders to verify that you are whom you say you are (by voluntary ‘flagging’ that you are living at a UK address) empowers them with confidence that you will be able to make your repayments on time due to your settled living situation.
Registering to vote is easy, merely go online at gov.uk and register yourself.
4. You’ve never taken out credit before
No this may seem odd, yet for those higher-earning individuals who have never needed, applied for or used credit before, can be impacted for having ‘a lack of credit history.’ Credit scores are built on an individual’s ability to repay the credit over a set period – whether loans, credit cards or mortgages. If you have little to no credit history, then lenders cannot verify how trustworthy of a borrower you are.
The solution here is to apply for a credit card that is designed to boost your credit score. The credit limit will not be high, yet the idea behind this tip is to use it and pay it off every month, thus demonstrating your ability to repay credit on time. Then, after several months, check your credit score and determine whether you are in a position to apply for a loan you need with other lenders.
5. Your credit report contains mistakes
Credit Reference Agencies like Experian and Equifax all compile credit reports on individuals that lenders view to determine whether they can lend credit to a borrower. It would be an excellent idea then if that said individual checks their credit reports to determine if all the information listed is correct. Wrong or incorrect information can impact your credit score.
For example, maybe you have been discharged from being bankrupt, and yet this is not listed. Perhaps you are still linked to an ex-partner who has an atrocious credit score. Your ex-partner’s lousy credit habits will impact your score – get them removed from your credit report.
Most credit report errors are genuine, due to a lack of updating records. However, they can display whether an individual has attempted to fraudulently apply for credit in your name – if this happens, contact the credit reference agency immediately to get the mistake rectified.