THE key to buying your first home is a healthy credit score, so giving yours an MOT is the first step towards home ownership.
We spoke to Experian’s expert John Webb about the 16 steps YOU can take to boost your credit history.
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If your credit score is poor, you might not be able to borrow enough to get the home you want – or you could be landed with higher monthly mortgage payments.
There are three main credit reference agencies in the UK which collect information about you from public records, lenders and other service providers.
When you apply for credit – such as taking out a mortgage or a credit card – lenders will want to check your record to make sure you’re reliable.
A “good” score is generally considered to be anywhere between 881 and 960, while a “fair” or average score will be between 721 and 880.
If your credit score isn’t high enough, or you just want to bump it up a little to get better rates, it is possible to build it up over time.
Here are John’s tips on boosting your score – including the Buy Now, Pay Later mistake you might be making and how to add your renting history.
Take your time
It takes time to build up your credit score, so you need to start planning in advance.
John recommends giving yourself just over a year to boost your score.
This will allow time for any new accounts you open to mature and to start positively impacting your score.
Check all three scores
You’ll have different scores from each of the three major credit reference agencies.
These are Experian, Equifax and TransUnion.
To get the best idea of where your score is at, you should check all three – it’s free to do.
There is a service called CheckMyFile that allows you to check them all in one place.
You can sign up for a free 30-day trial. Remember to cancel or you will be charged £14.99 a month.
Easy bank account mistakes to avoid
You may not realise it but opening new bank or credit accounts can lower your credit score temporarily.
That’s because you will go through a credit check whenever you apply for a new account – and this impacts your score for a short while.
Each new account application and opening can lower your score for up to 12 months.
After about six months, the new account will start to have less of an impact on your credit score – as long as you’re regularly making payments on time.
Once the account is about a year old, it will start to have a positive impact on your credit score.
So it’s not necessarily a bad thing to open a new account – but you should try to avoid it in the year before taking out a mortgage.
For the same reason, you shouldn’t open too many bank or credit accounts around the same time.
This is because although it’s only a temporary dip, opening lots of accounts at once won’t give your score time to recover.
Being a loyal banker can pay
If you’ve had at least one or two of your bank accounts open for a long time, that will look good to lenders.
That’s because it shows a consistent payment history over many years.
Credit score companies calculate the average age of your bank accounts, and the older that is the better.
Ideally you should aim for an average account age of five years or more.
Why Buy Now, Pay Later purchases could set you back
Buy Now, Pay Later schemes don’t yet factor into credit scores.
But John says you should try to avoid using them if possible – especially close to your mortgage application.
That’s because every time you do a new BNPL transaction it shows up on your credit report as a new account.
And as we mentioned, you want to limit opening too many new accounts.
John says: “If it’s entirely affordable to use Buy Now, Pay Later and you don’t have any issues making the repayments and so on then that’s all right.
“But I would tend to be a little bit more cautious, so probably the three months-plus before you apply for a mortgage you should probably avoid it if you can because you don’t want those new accounts jumping onto your credit report.”
Log your council tax and Netflix bills
You can add extra information about payments you make regularly through Experian’s Boost feature.
These can include council tax payments, savings accounts and subscriptions like Netflix and Spotify.
You can boost your score by a huge 101 points if you do this.
Be aware though that not all lenders will factor this in.
Get a credit card – and keep using it
Having a credit card and paying it off regularly and on time can help to boost your score.
However you should make sure you keep using it.
Not using it for a long time could mean it gets marked as “dormant” or the account is closed.
“Good practice is to keep it active with very small essential spending, something you would have spent on anyway, and paying off in full every month just so you keep the card active,” John says.
Of course, if you miss a credit card payment that will have a negative impact on your score so you should only borrow what you can afford.
Have a high credit limit…
When you take out a credit card, you’ll have a limit on how much you can borrow.
The higher your limit is, the better it is for your credit score.
John says that having a limit of £3,500 or above is good for your score.
However this may vary across credit reference agencies.
…but keep your credit card balance low
You might want to have a high credit limit – but you shouldn’t be maxing it out.
John says you can get a “significant” score boost if you have a high limit but you keep your credit card balance below 25% of that threshold.
If you’re using Experian, doing this could add a huge 90 points to your score.
Plus, if your balance is £50 or less you can get another 30 points.
Think about timing
It’s worth noting that credit reports aren’t updated in real-time – so it can take a while for things to show up.
If you’re planning to apply for a mortgage, you might want to make sure any debts or balances you’ve paid off are showing up on your credit file.
For example, you don’t want it to say you owe £900 at the point that you apply for a mortgage.
Ideally you want to pay off the balance before your credit statement is produced.
Add your renting history
Not everyone is aware that you can add your renting history to your credit report voluntarily.
If you’re a private tenant and pay your rent on time, this can help improve your score.
You can add the information to your credit report using services like Credit Ladder or Canopy.
Reduce your debt
If possible, prioritise paying off any debt you have.
This can dramatically improve your credit score and potentially mean you get better interest rates on your mortgage.
You might also be able to borrow more.
The EASIEST way to boost your score
This is perhaps the simplest one to do and will give your score a decent boost.
Just make sure you’re registered on the electoral roll at your current address.
Lenders like this because when you register to vote, your electoral details are recorded on your report and this helps them confirm your name and address.
Plus, this can save you time on your credit applications because if lenders can’t confirm your details through the electoral roll they may ask for other forms of identity and proof of address.
Use eligibility checkers
Before you go ahead with applying for a mortgage or other credit, you can use eligibility checkers offered by lenders.
These can give you an idea of how likely it is you’ll be accepted and the terms you might receive.
But, crucially, they’re “soft searches” so that means they won’t affect your credit score.
Meanwhile if you apply for a mortgage and get rejected then it will show up on your credit report.
Don’t let a mistake scupper your chances
It’s worth going through your credit report carefully to make sure everything is correct.
You might spot an inaccuracy – for example, a missed payment that shouldn’t be there.
If that’s the case, you should contact the credit reference agency to dispute it.
The agency can then query it with the lender on your behalf.
Add notes to your credit score to give you power
If there’s a negative mark on your credit report, you can explain what happened if it’s for a genuine reason.
Credit reference agencies will let you add a “notice of correction” of up to 200 words on each mark.
You can do this if you missed a payment for reasons like redundancy, illness, bereavement, mental health issues or a gambling addiction.
Having a notice of correction means a human will review your application, rather than you getting an automated refusal.
However lenders can still refuse you in this case and it can delay the application process.
How a poor score means you’ll borrow more
A POOR credit score can also cost you more. For example:
- On a £3,000 loan, someone with bad credit might pay £2,499 more in interest over three years compared to a borrower with excellent credit, according to TotallyMoney.
- Mortgage rates for those with poor credit can be 1-2% higher, adding thousands to yearly repayments. A £250,000 mortgage could cost an extra £3,567 a year for borrowers with poor scores.