Bad credit can be both stressful and costly, but it’s not the beginning of the end, more like the end of a new beginning. As hopeless and emotional as the situation might seem, bad credit won’t last forever, and there are things you can do right now to begin improving your credit score for the future.
Everyone should put in the effort and time to effectively manage their own credit score. Credit scores are no longer about whether you will get accepted for a mortgage or a new credit card. They can also affect other things including car insurance, mobile phone contracts, TV and broadband contracts and loads more.
However, there are so many misconceptions and myths that’s surround credit scores in the United Kingdom. In this guide, we are going to cover everything you need to know about credit scores and how to boost your own so you’re more likely to get accepted for the products or services you want and also secure the best rates at the same time.
What Are the Facts Surrounding a Credit Score?
The facts surrounding credit scores are saturated with the wrong information to the point where even some of the leading publications in the UK get it wrong. The misunderstanding is mainly because lenders don’t actually want consumers to fully understand the facts behind it. They want you to think that they work in a certain way so they can upsell their products to you.
- Credit Scoring is About Predicting your Future Spending and Consumer Behaviour
When you apply for a product such as a payday loan or guarantor loan a credit check is done. This isn’t easy if you have very little credit history. To determine a score, the lenders collate all the data they have on you and pour it into an algorithm in an attempt to predict your future spending and consumer behaviour based on what you have done in the past.
- What the Lending Companies Really Know About You
When applying for products, it is crucial to know what the lending companies know about you so you can present yourself in the best way possible. You may think that it’s all about what’s on your credit file but there’s a lot more to it than that.
- Your History with Mobile Phone and Energy Providers
Many energy and mobile phone providers now share credit report data so if you are looking to change your providers be aware that your payment history is likely to leave a footprint.
- Fraud Data
If you have personally committed fraud or somebody has stolen your identity and committed fraud, then be aware that this is held on your credit score file.
- Information That You Enter on The Application Form
This is considered one of the most important parts when applying for a product and it’s something that you have complete control over. The application form is how you present yourself to a prospective lender, so it is important to apply attention to detail. This is where the lenders obtain your personal details such as your salary, family size, address and your reason for the loan. It is important to be consistent throughout the process as mistakes can cause problems that the lenders will not inform you about.
Your credit score files like the ones held by Experian contain masses of data about you. However, like most technology errors can be made and errors can cost applications. That’s why it is important to regularly check your files to make sure that nothing is wrong before you start making applications.
- Using a Lender That You Have Had Previous Dealings With
The lending companies use any data they have on you if you have used them before and this directly feeds into your credit score. If you have had problems with the lender in the past, then it is unlikely that you will get accepted by them again.
- Companies See Lending Money as a Risk and Whether You Will Make Them Money
It is often that people who have perfect credit scores and that have never missed their repayments have been rejected by lenders. But why?
This is often based on the complete misunderstanding that the lending companies are scoring prospective customers on whether they will be profitable or not. Obviously, if somebody has a bad credit score, then they will be seen as a risk, but repaying is only one element to it.
- Cancel Any Unused Credit or Store Cards
If you have too much access to credit, then this will have negative effects on any application that you make even if it isn’t being used. So, if you have a range of different store or credit cards, it’s a very good idea to cancel some of them to lower the amount of credit available to you. On the flipside of this, long-standing bank accounts with good credit histories are actually beneficial to your credit score so these are best left open.
- Mitigating the Damage if There Is A Default on Your File
One the issues that people face on their credit reference files is defaults. Defaults basically show that you didn’t pay, but you should have done. If you have defaults on your file that are relatively new, then this can severely affect your chances of getting new credit. If it’s a default that should be there, then you can challenge it. If it’s genuine then, unfortunately, your options are limited. After all, it is these files that show lenders your history. There are two main ways of resolving a default –
- Negotiate with The Lender
If you have the money or savings hidden away and prepared to settle the debt, then you can negotiate with the lender or whoever you owe the money to. You can also request that if you are settling the full amount that the default is wiped from your credit reference file.
- Let Time Run Its Course
Defaults stay on your credit reference file for six years but the older the default is then, the less of an impact it will have when applying for new credit.
- What Should You Do If There Is an Unfair Default or Error on Your File?
If you discover that you have an unfair default on your credit reference file, then you must dispute it as it will block most credit applications that you make. Unfair defaults can appear for a new number of reasons. It could just be a simple error made by the credit reference agency in which case is easy to remove once they have been aware of the error. A more likely case is that the lending company put it on there in error or if you were in dispute with them over whether you actually owed them the money or not. Here’s what to do if you discover an unfair default.