How to improve your credit score: part 2
By Kevin Allen | Fri 20 Nov 15
By Kevin Allen | Fri 20 Nov 15
Get the credit basics right
To state the obvious: pay your bills on time and make sure you’re on the electoral register. There are also some insights that are based on longer term considerations – agencies favour people who reside in one place for a long time, and ideally own a property, rather than moving to a different rented home every six months.
All the big agencies allow you to check your credit score for free, so if you do that you’ll be able to spot anything that doesn’t look right, and get it corrected. We recommend you do so using services from the big three agencies: Equifax, Experian and Noddle (part of Callcredit).
Pro tip: don’t cancel unused credit cards>
If it often claimed that cancelling unused credit cards will improve your score. But there are two reasons why this might not be the case.
Firstly, if you’ve recently taken out a new credit card, other lenders could initially be worried that you’re struggling with your finances, but this would recede as you prove that you can pay it off. What that means is that if you cancel your credit card only to find that you need to reopen it a few months later, you’ll harm your credit score, when you could have just kept the credit card open to start with.
And here’s the trade secret: one credit agency looks favourably on unused credit – that is money that you could spend, but don’t – they see this as a sign of financial discipline. That can give your score a boost, so if you’ve got a credit card that you’re not using, keep it open. The classic Bob Hope quote still rings true today, "A bank is a place that will lend you money if you can prove that you don't need it."
Don’t worry too much about “shopping around”
You’ll see warnings that applying for credit with too many lenders can affect your credit score. While this is technically true, there are two things that act in your favour here – the first is that more forward-thinking lenders, such as RateSetter, do what’s called a “soft search” of loan applicants, which doesn’t affect your credit score. The second is that you’d need to apply for a lot of loans in quick succession for it to cause problems – if we saw 5 recent searches, that wouldn’t ring alarm bells as long as the rest of your details look good. If we saw 20 searches then we’d have more of a problem.
To quote one major credit bureau: “If a consumer is judged to be a borderline case for other reasons, it is possible that the existence of numerous credit searches might be sufficient to tip them over the edge but, in practice, this actually happens very rarely.”
Having said that, multiple searches can indicate fraud, rather than someone who’s desperate. Multiple searches can often act as a warning trigger that a customer is being impersonated, and the fraudster is trying to obtain as much credit as they can very quickly.
Hopefully this article has helped to demystify credit scores. If you’re still struggling, the best thing to do is speak to a debt charity about it – Step Change and the Money Advice Service are great places to start.
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