Martin Lewis reveals why you should stop worrying over your credit score – how to boost your chances of getting accepted
MARTIN Lewis has revealed why you should stop worrying about your credit score – and why it's not the only thing lenders care about.
Your credit score shows how well you’ve managed your borrowings over the last six years, and lenders use it to calculate how risky it would be to give you money.
So it can help you – or hinder you – from getting a mortgage, loan and credit card.
But Martin has explained in his latest blog on consumer website MoneySavingExpert why you “shouldn’t worry too much” about what your rating is.
There is no universal credit rating – there are three main companies that have different scoring systems to rate your credit worthiness to lenders.
These companies are: Experian, Equifax and TransUnion, and they should all have files on your financial history online.
Martin said that you’ll have a different credit score depending on which company you check it with.
For Experian, you’ll be rated on a scale of 0-999, Equifax from 0-700 and TransUnion from 0-710.
How to improve your credit score
WE explain how to improve your credit score.
- Don't make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a "soft-search" eligibility calculator to show how likely you are to be accepted.
- Always pay your bills – Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt – Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
- Use a credit-builder credit card – These cards tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, it can improve your chances in the eyes of lenders.
These scores alone won’t dictate whether you’ll have your credit application accepted or rejected.
Martin said each lender will do its own assessment as to whether it will give you money.
It will use other information too, such as any past dealings you've had with the company and your credit application form.
He added that your credit score also doesn’t factor in whether you can afford to repay the loan – which is called the affordability test.
This is “just as important” as your credit worthiness in getting your application accepted, Martin said.
So while you're credit score may be good on your file, a lender might not give you money if you cannot afford to pay it back – for example, if you've lost your job.
He added that a drop in your credit score isn’t necessarily a bad thing either, in some cases.
“I'm often contacted on social media by people worried their 'credit score' has dropped by 20 points or so – often when they've done something they didn't think would be negative, such as closing down an unused credit card,” he said.
“Yet some lenders will see that as positive, as you've less available credit.”
But big drops in your credit rating should be “taken seriously”, Martin added.
“It's a decent indication that your data has changed, suggesting you've committed a real credit sin such as missing a payment, going over your limit or defaulting,” he said.
If you haven’t done any of these things, then the financial guru urged Brits to find out why the rating had dropped.
You can do this by checking your credit file online – the drop could be the result of an error or even identity fraud.
How to check your score and boost it
You can check your rating for free by heading to Equifax, Experian or TransUnion – but there could be some costs:
- Equifax: You can check your score and report for free for the first 30 days, after which it's £7.95 a month.
- Experian: You can check your score for free using its online service. But if you want to check your report itself, you can only do this for free using a 30-day trial, after which you'll be charged £14.99 a month.
- TransUnion (formerly Call Credit): You can sign up to its Credit Karma service for free to get unlimited access to your report and score for life.
But if you have a low credit score, it’s worth building it up.
It can stop you from getting a mortgage, like teacher Sarah Arrowsmith discovered when she had to let go of a dream home because of a County Court Judgement she was totally unaware of.
There are a number of ways to boost it.
You can get on the electoral register, which proves who you are and where you live, which means its easier to get credit if you’re on the list.
You should also limit your number of credit applications, as lots of requests could be seen as a sign of financial distress to some lenders.
Pay your bills on time to boost your score, as any missed payments will be logged on your file.
Try and pay down any debt you have as this might put lenders off signing off your loan.
A Martin Lewis fan explained how he made £4,000 from switching banks.
He also explained how couples can get up to £340 in free cash from banks.
Plus, he's explained why card users should check their personal details now – or risk having payments rejected.
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