Smile's Top Tips for Improving Your Credit Score

The most frustrating thing that can happen when you apply to buy a car on finance is finding out that you have a bad credit rating. Some finance providers will turn away people with poor credit and those which don’t will charge a much higher rate of interest. For this reason, you should try to keep an eye on your credit score.

How Do I Check My Credit Score?

Your credit score is based on information held in your credit file, including your financial links, previous credit applications, missed payments and outstanding fees. Paying bills on time will raise your credit rating, whereas missing payments will damage it, meaning that you will incur high interest rates when you apply for finance. This is because providers will see you as a high-risk borrower.

To maintain a positive score, it is a good idea to check your report regularly. There are three main credit reference agencies in the UK: Equifax, Experian and Call Credit. Each company has its own system for determining your credit rating.

These credit reference agencies will allow you to access a basic report of your credit history for £2, but if you would like more detail, unlimited access to your report and alerts to major changes on your file, you can pay a monthly fee to receive these services.

There is also a way to access your credit report for free. You can access your Equifax score through Clearscore, your Experian rating by signing up to the MSE Credit Club and your Call Credit score through Noddle, all of which make their money through advertising and credit-related products.

These sites will not give you as many features with their services as the agencies and there can also be around a two-month delay in your information being updated, but these tools are great if you want to get a rough idea of what your credit file looks like without paying a penny.

What Does It All Mean?

Lenders will assess your credit score against their own criteria, but your rating with a credit reference agency is a good indication of whether or not you will be offered a low interest rate by your finance provider.

Equifax rates credit out of 700, and a good score is 420 or over, while Experian rates out of 999, and a good score is 880 or more and Call Credit rates out of 5 with 4 being a good credit score.

How Can I Improve My Credit Rating?

Typically, the most recent activity on your file will hold the most significance for lenders when they assess your credit circumstances, which means that if you improve your credit score now, your past will not impede you too much, as it is your current financial situation that most providers will be interested in. Here are Smile’s top tips for improving your score.

1.       Ensure that there are no errors on your file

First things first, when you check your credit report, you should make sure that all of the information is accurate. Make sure that:

• your personal information, such as your date of birth and address, is accurate,
• all of your credit accounts are recorded,
• there are no payments that have been reported as late or missing that you actually made on time.

If you do find any errors, you can dispute them with the credit reference agency.

2.       Check your report for fraud

If you find misinformation on your credit file, for example, if a credit application has been made in your name that you have not made yourself, this could be a sign of fraudulent activity. You should alert the credit reference agency immediately so that they can update your report.  

3.       Take care of any outstanding debt

It is important to pay off your existing debt before making a new finance application, as providers may think it would be risky to lend to you.

4.       Register to vote

Registering on the electoral roll can make it easier for you to get credit. You can do this online or by post.

5.       Pay your bills on time

One of the most important factors that will determine your credit score is whether or not your bills are paid on time. If you often find yourself missing payments, you might want to consider setting up reminders. With some banks, you can arrange for texts to be sent to you when certain bills are due. Paying bills on time will show finance lenders that you can be trusted to make regular payments.

6.       Don’t let your financial links drag you down

If you have a joint account with a friend, family member or spouse, their credit rating will be linked to yours. If they have a poor score, your own rating could be affected, so you might want to think about whether you want to be connected financially with this person.

7.       Be careful with your credit card

Aren’t credit cards great? They are until you accidently overspend and realise that you can’t afford to pay back what you owe. Credit card debt can be extremely harmful to your rating.

Don’t let this deter you from getting a card though - they can be a great way of proving to lenders that you are capable of paying back money that you borrow, as long as you use them wisely. Try not to use more than 30 per cent of your card allowance at any time and limit the number of cards you apply for.

If you are struggling to pay off debts or make certain payments, you should seriously consider seeking financial advice. Having poor credit will not necessarily prevent you from being successful in a finance application, but you will face a higher interest rate, which will mean you having to pay more money in the long run, so it is definitely worth trying to get your credit file back on track.