How forgetting to pay your bills could wipe 130 points off your credit rating
FORGETTING to pay a bill, opening a new account in the past six months and having just one credit account in your name can have a damning affect on your credit score. But what does it matter?
When you apply for any type of credit, lenders will check out your credit history and your rating - or your score - and it could be key factor in whether they decide to lend to you.
The lower the score, the worse the rating, and the better the score the better deals you'll be offered.
asked credit reference agencies (CRA) Experian, Equifax and Callcredit to reveal their secrets about how they calculate your score, and credit cards play a big part.
Each CRA has a different way of scoring you - Experian rates you up to 999, Equifax out of 700 and Callcredit up to 710.
Having a credit limit of more than £5,000 can boost your score by around 20 points with Experian, while clearing your balance every month can add 60 points.
Plus spending less than 30 per cent of the limit will add 90 points to your score.
Failing to pay off just one month's credit card debt with slash your score by 130 points, and defaulting on an account entirely could cost you 350 points.
Having a low credit card limit of £250 or below can also see your score drop by 40 points, and the same goes for opening a new account in the last six months.
If you're in the market for a credit card, we've put together a round up of some of the best ones on the market at the moment.
How do I check my score?
TWO thirds of Brits have no idea what their credit score is, according to a survey by online lender MYJAR, so it's worth checking yours out to see if you need to improve it.
All three CRAs offer you the chance to view your score, report and more for a monthly fee BUT you can get hold of your score for free without paying for a subscription.
Experian - Sign-up to its CreditMatcher service which will give you access to your score and help you shop around for deals you are likely to be accepted for. If you want access to your full report you'll pay £14.99 a month after a 30-day trial period ends.
Equifax - You can get your Equifax report AND score through a website called Clearscore. If you go to Equifax directly you'll pay £14.95 a month after its 30-day free trial.
Call credit - You can get your report and score for free via its Noddle website, which advertises loans and cards you are likely to be accepted for.
You also have a legal right to access your report from each CRA for just £2 - but this won't include your score.
What do I do if I've been rejected for a credit card?
As tempting as it is, the worst thing you can do if you've been rejected from one credit card is to apply for loads more straight away.
This is because each time you make an application, it will be recorded on your report - so you making lots of applications in a short period of time could be seen by lenders as a sign of you being in financial distress.
On the flipside, if you've never taken out any borrowing and you've got no credit history, you could also find it difficult to be accepted as lenders have no record of you showing you're good for the cash.
HOW YOU CAN IMPROVE YOUR CREDIT SCORE
WHILE there is no credit blacklist which bans people from any sort of borrowing at all - if you have struggled in the past you may find lenders won't consider you.
Here are tips to help you improve your rating:
- Don't make too many credit applications - Making lots of requests in a short period of time can be seen as a sign of financial distress - and each application will be recorded on your file. Use a "soft-search" eligibility calculator to show how likely you are to be accepted.
- Always pay your bills - Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt - Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already a large amount of debt.
- Use a credit-builder credit card - These cards tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, it can improve your chances in the eyes of lenders.
Does my rent count towards my credit score?
As it stands no, the regular rent payments you make for your home is not taken into account when it comes to your credit score.
But some MPs are campaigning for them to be automatically taken into account to help struggling generation rent get a house.
If the law were to be changed, it would mean that young people with no credit history, or a poor score,
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The move has been backed by the Residential Landlords Association, who say it can help to give a more accurate assessment of how well they can pay.
The debate came to Parliament after an e-petition which argued the case gathered 147,000 signatures - forcing MPs to consider it.
In the mean time, CreditLadder do run a free scheme and report to Experian, which renters can use to send them information of whether you pay it on time, which may bring up your credit score.
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