A recent survey conducted by Finder.com revealed that one in five people have a poor credit rating. A poor score is one below 531, and Finder found that the average credit score in the UK is 644 on the Equifax scale. The research also discovered that around five million Brits are credit invisible, meaning they have no credit history.
A separate survey from TotallyMoney found people with a poor credit score typically pay an extra £693 interest each year on the average credit card balance.
In terms of regions, the average credit score was lowest in Northern Ireland and highest in the South East, with scores of 603 and 680, respectively. Those aged 65 and over are the only age group with the highest credit score rating on average, with a score of 839.
Meanwhile, a survey by Experian discovered that almost seven out of ten of us do not know what a credit score actually is.
For that 70%, a credit score is a prediction of your credit behaviour, as your financial history would allow lenders to see if you have a good credit rating and would have the ability to pay off a loan.
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To help avoid a poor credit score from holding you back, Ben Thompson, the deputy CEO at Mortgage Bureau Advice provides seven tips to help boost your credit score, and place you in a better financial position.
1. Check your credit score
The first place to start is to find out how good or bad your credit score is. Companies such as Experian, Equifax and Transunion, can provide you with your credit score, while Check My File is another good source to use as it includes all these companies in one report. This will be a thorough report of all your credit accounts, including outstanding loans and any missed or late payments over the last six years, as well as any other people who are financially linked to you.
Beware that occasionally the reports may include inaccurate information, and if this is the case, you can get this put right before applying for a mortgage.
2. Show an account history
You can start by proving you have a good history when it comes to managing your finances.
It would be advisable to put together a history of bank accounts, for example any current account, savings accounts, ISAs, and a credit card. This will give your mortgage adviser a decent credit history to look back through.
3. Declare your address
Lenders will need to see proof of your name and address to trust you are who you say you are.
Make sure that your bills and credit commitments are registered to your current address, and adding your name to the electoral role would also be a smart move. This way everything is easy to trace back to you and confirms your identity.
4. Don’t miss repayments
This may sound like an obvious one, but missing payments will have a detrimental effect on your credit score. Any missed payments will alert potential lenders that you are inefficient in managing your finances and paying your bills on time.
5. If you have bad credit, stop applying for more credit
If you know for a fact that you have bad credit, having multiple credit searches carried out in a short space of time can go against you. In the meantime, it’s advisable that you clear your existing debt before you apply for anymore credit.
6. Don’t keep unused cards
If you hold on to credit cards that you no longer use that can pose a fraud threat, and can also be misleading as to how much available credit you currently have. Make sure you cancel any accounts you don’t use and cut up any inactive account cards before throwing them away.
7. Speak to a mortgage adviser
Reach out and speak to a mortgage adviser if you’re concerned about your credit score, and its impact looming over you when trying to pursue your homeownership goals. Advisers can provide you with sage and knowledgeable personalised advice to assist you in considering ways to improve your credit score.