It’s never been easier to check and take care of your credit score, but few of us take the time to do so. If you anticipate applying for a mortgage, property finance, personal or commercial loan, then it’s important to think ahead and ensure that your credit history is in rude health and that your credit score accurately reflects a good and responsible pattern of behaviour.
One of the key factors that a lender will consider when reviewing your application for finance of any sort is your credit history, which is summarised by the credit score that appears when it checks your details. Along with the amount of debt that you have, your credit score incorporates your payment history for loans and credit cards, public records including applications for bankruptcy, alongside how much credit you have.
What is a good credit score?
One of the leading credit reporting companies Experian states:
‘For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750.’
How can I improve my credit score?
Your credit score will influence a company’s decision to allow you to borrow money for a variety of things – from applying for a phone plan to a car loan, development finance or a new mortgage, your credit score affects your chances of being approved. It’s important to know that too many rejected applications can go against you in applying for credit. Therefore it makes sense to ensure your credit history is as good as it can possibly be, before you apply for a mortgage or loan.
Companies such as Experian, Equifax and CallCredit enable you to check your credit score, and a simple report may reveal that there are errors which can be rectified and which will improve your rating. For example, a common name can occasionally be confused and someone else’s bad credit history may incorrectly be attached to your report.
If you have lived at an address where another individual with a bad credit history has also lived, this may mean information has been incorrectly associated with you and this can be corrected accordingly.
Identity fraud is a growing problem, and a credit report may reveal that someone else has used your name and details to apply for credit, which is nothing to do with you.
If you have had financial problems in the past and have missed payments due to circumstances out of your control, there is the opportunity to add a short 200-word statement that can be viewed by lenders, explaining why you have had problems meeting your financial commitments.
If, for example, you were made redundant or had undergone a period of illness and had been unable to work, this can be noted alongside missed payments, as an explanation that you have been responsible and addressed your personal finances as quickly as possible. An applicant who has explained and taken positive steps to improve their financial performance will be viewed more favourably than one who acts recklessly or is financially unstable.
How can I increase my chances of getting a mortgage or loan?
There are a number of practical ways that you can improve your credit score and consequently increase your chances of being approved for a mortgage or loan.
- Register to vote
Being on the electoral roll will make your application for a mortgage or loan far easier. By ensuring that the address that appears on your monthly bills and bank statements is the same as where you are registered to vote will ensure that the supporting documentation submitted with your application is seamless and more likely to be accepted by a lender.
- Use your credit card
It might sound counterintuitive to spend to improve your credit rating, but if your credit score is low you can improve your score by regularly using a credit card for small purchases. The most important thing is to ensure that you always pay the balance in full at the end of every month as this demonstrates to a lender that you are responsible and can manage your finances and credit effectively. By creating a track record of good personal financial management, you are proving yourself to be worthy of further credit lending.
- Preparation, preparation, preparation
Just as the mantra goes that buying a property should be governed by location, location, location, applying for a mortgage or loan should be preceded by a period of preparation, preparation, preparation. If you are planning to apply for a mortgage or loan, spend up to a year thinking about and tidying your finances so that things are in good order when lenders review your credit score and financial standing.
If you have small amounts of debt across several loans or credit cards, consider whether you would be better combining these into one consolidated loan on a fixed rate. This may enable you to stabilise your finances and create a consistent payment plan that demonstrates to lenders that you are in control of your finances. NM Finance works with a wide range of lenders who are flexible in considering applicants with a poor credit history, and can help you to organise a consolidation loan to suit your individual needs.
Every application that you make for lending will appear in your credit history, and repeated attempts might suggest that you are struggling financially, so plan ahead – as a broad rule, do not apply more than once every three months – and work with an expert broker such as NM Finance who will know which lender is most likely to look favourably on your application.
What are the benefits of improving my credit score?
By owning and managing your credit score, you will maximise your potential to borrow. Although it’s important to think carefully about the right type of loan for your circumstances, by working with NM Finance you can be sure to find the best property or personal finance deal for you.
Whatever your financial situation, it makes sense to find out and carefully manage your credit score to the best of your ability – it undoubtedly pays to be in control of your finances.