Credit Score

Abdelrahman Abdeltaweb
Trainee Solicitor

Our Top Tips to Improve your Credit Worthiness

Credit score can have a significant influence over a person’s financials.Your credit status directly affects your ability to get loans and credit, and it influences the terms lenders offer you.The better a person’s Credit score is, the lower the interest they have to pay towards their loan repayments.Several factors can impact your credit score, including your repayment history, current debt, housing status, and whether you’re on the electoral register.

Do not fall for misconceptions!

In the UK, no single credit score determines your creditworthiness across the entire market. Credit often involves misunderstandings fueled by lenders and agencies using fear to sell credit products. The opposite is true about credit scoring. No one always gets it right, and perfect solutions don’t always exist. Different lenders are looking for different things. However, our top tips to improve your credit score should help you to look more attractive to most!   

What is Personal Credit?

Personal credit reflects your reputation as a borrower, helping lenders decide on approval and interest rates. It’s a contract where you borrow and promise to repay with interest.

What is a Credit Rating and Credit Score?

A Credit rating evaluates how likely a typical lender would be accepting to offer you Credit. Lenders, such as those providing loans, credit cards, and mortgages, use your credit history to predict your future financial behaviour.

Most often, lenders run a credit check when you apply for a credit product. Lenders input all your data into algorithms that analyze it to predict your future behavior based on your history.

For example, imagine your friend Sofija is going through a tough time and asks to borrow money. Even though she’s well-educated, respectful, and a close friend, you know she has a history of managing money poorly. You’ve lent Sofija money several times before, but she hasn’t repaid you, so you know the risk is high. Would you still lend her money despite her track record? Credit scoring evaluates how well you manage your finances and repay debts—not your personal qualities or social ties.

Lenders examine various data to assess your creditworthiness, including your credit history, recent applications, and outstanding debts. They use their own records and consult credit reference agencies like TransUnion, Equifax, and Experian. Credit reference agencies collect and hold a significant amount of your personal data. We’ll explore how they gather this information and the legal basis for it in our next article.

Here are our top tips to improve your credit worthiness

1. Never miss or be late on payments – Payment history is a crucial factor in your credit score. Missing payments or paying late can significantly harm your score because it signals to lenders that you may be a risky borrower. Pay your bills and debts on time to keep your credit score healthy.
   
2. While a poor credit history counts against you, so does having little credit history – If you have a thin credit file, lenders have less information to assess your creditworthiness. Start building your credit history by using credit responsibly, such as through a credit card or a small loan, and ensure you make payments on time.
   
3. Providing consistent answers to all your applications – When you apply for credit, consistency in your application details (such as job title and phone number) helps avoid flags in fraud scoring systems. Lenders view consistency as a sign of stability and reliability, which can increase your likelihood of getting approved.
   
4. Don’t let your partner/flatmates poor score wreck yours – Sharing financial products like joint bank accounts or mortgages links your credit histories. If your partner has poor credit, it can impact your own credit score. Be mindful of whose name appears on bills and joint accounts.
   
5. If splitting up? Remember to cut your financial ties – When separating from a partner with shared finances, sever ties by getting a notice of disassociation from credit agencies to inform lenders you no longer share finances.
   
6. Getting on the electoral roll, to avoid tracing issues – Being on the electoral roll verifies your address and identity, which makes it easier for lenders to trace your credit history. This not only speeds up credit applications but can also slightly improve your credit score.
   
7. Avoid many applications in a short time – Each credit application can result in a hard inquiry, which can lower your credit score. Multiple applications in a short period can make it seem like you are desperate for credit, which is a red flag to lenders.
   
8. Time applications right, so fewer negatives on file – CCJs, defaults, and bankruptcies remain on your credit report for six years.Applications for credit leave a mark for one year. Timing applications when fewer negatives are present on your report can improve your chances of approval.
   
9. Avoid credit card cash withdrawals – Withdrawing cash with a credit card is costly due to high fees and interest rates. Lenders view this behaviour as evidence of poor financial management, which can negatively impact your credit score.
   
10. Payday loans can kill mortgage applications. Repay BNPL on time – Payday loans are viewed negatively by mortgage lenders as they indicate financial distress. Manage Buy Now, Pay Later carefully; missed payments can lead to debt collection and harm your credit file.
    
11. Paying rent on time – While paying rent on time may not directly boost your credit score, certain housing associations report rental payment behaviours to credit reference agencies. Late or missed payments could negatively impact your score. Additionally, landlords can initiate court proceedings for unpaid rent, which could appear on your credit report.

Why do you need to build your credit score?

A strong credit score enhances your ability to secure a mortgage or loan successfully. It also increases the likelihood of receiving lower interest rates on repayments and potentially higher credit limits on credit cards.

A low credit score reduces your credit chances and worsens loan rates and terms, creating future financial challenges.

For specialist advice and support. please get in touch with our divorce solicitors in London now by calling 020 7139 9266 or contacting the GOOD LAW INTERNATIONAL office.

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