Improving your Credit File

Your credit file is important. Whether you need a new car, a place to live or even just a mobile phone, having a poor or limited credit history can reduce your chances of being approved for credit. While it’s important to know how you can make yourself more attractive to lenders, it’s also important to know why you should be trying. The way lenders consider your credit file information is a very well-kept secret so there’s no quick application hack. You can only try to show that you’re a responsible borrower and that there is little risk in lending to you.

Factors that influence your credit report

It would be impossible to determine all the factors that influence your credit report. However, there are some aspects which are widely understood as having an impact on your credit file and most of them are fairly common sense. It’s important to remember that while lenders look at your credit history in order to predict your future behaviour, there are some things that they solidly know, and it’s critical that this information is up to date and accurate. It may include the details you enter in the application form, any history you have with that lender, and fraud data (whether you’ve committed fraud or had fraud committed against you). There are also things that lenders don’t know about you:

  • Your salary (but they may compare what you enter on your application form to what you’ve previously told them you earn)
  • Your savings
  • Any medical or criminal records (your credit file might state if you’ve committed fraud, but any criminal convictions are not recorded there)

Lenders may also run a credit check on anyone you are financially linked to. This may include a spouse or partner, or even someone you live with if you’re both listed on your energy bills, for example. Even if you apply for a credit product on your own, lenders may use information about the people you are financially linked with to help them assess your application. You are financially linked to someone if you share a joint financial product (credit card, energy bill, mortgage, etc).

Current Credit Usage

Your current credit usage influences how lenders view your application and can impact your credit score. It’s not known exactly how your use of credit affects your assessment, but generally if you’ve maxed out your current credit facilities, it’s probably not going to look good. Lenders don’t mind if you use other forms of credit, as long as you demonstrate you are responsible – in fact, having a reputable payment history is really what lenders are looking for. This includes making loan and bill repayments on time, making at least your minimum payment each month on running accounts (though it would be better if you paid more than just your minimum payments) and avoiding missed payments and defaults. However, having too many active credit facilities open – even if you haven’t used the entire credit limit – can also harm your credit file. This is because if you have access to a large amount of credit, you could use all of that credit which means your repayments will increase and ability to make your repayments to the lender viewing your application might reduce. So close any old and unused accounts if you have other credit facilities you use more regularly.

Repayment History

As we touched on above, your repayment history matters hugely when it comes to your credit report. Ultimately, lenders want to know that you will make your agreed repayments on time and in full. If you’ve successfully done this for every loan or credit service you’ve had so far, the chances are you’ll successfully continue doing it. If your repayment history is a little patchy, lenders may see this as a risk, and either decline your application or reduce the amount of credit they’re willing to lend to you. They may also charge you a higher interest rate.

Payday Loans on your Credit File

Payday loans are often cited as “unsecured loans” on your credit report, though some may explicitly state payday loans. As long as you make your repayments on time, it’s unlikely lenders will view this information negatively. But having too many payday loans – or any type of credit – open at once, or submitting several applications in a short space of time, probably won’t help you. This is because lenders may think you’re desperate for credit and unable to manage your money responsibly.

Is your actual credit score important?

Your credit score is a number which, while taken into consideration, has little weighting on your overall assessment by lenders. This is because they are more concerned about your credit history, as this can help them to predict your future ability to repay. For example, you could have a great credit score, but if you’ve never taken out a credit card before, a credit card provider won’t know if you’re likely to meet your credit card repayments on time. While you should still aim for a good or excellent credit score, it would be better to focus your energy on improving the contents of your credit file (and your credit score should improve as a consequence anyway).

Quick Tips to Improve your Credit File

  • Always pay on time: you might be bored of hearing it by now, but it truly is the easiest way to avoid negative information from being recorded on your file. Set up a direct debit so the payments are made automatically and always pay at least your minimum payments if you can’t afford the full balance each month.
  • Don’t withdraw cash on a credit card: it can be interpreted as bad money management. You’ll probably also be charged a fee for it.
  • Get your timing right: if you’re applying for a mortgage within the year, try to avoid applying for credit. Applications – even approved ones – leave a search footprint on your credit file for 12 months, which other lenders can see.
  • Find out why you’ve been declined: it might be down to a simple mistake on your credit file like an out-of-date address, or it could be something more concerning. Check your credit report straightaway if your application is rejected. You can also ask the lender directly.
  • Know the difference between soft searches and hard searches: soft searches cannot be seen by lenders, whereas hard searches can – and hard searches can affect how lenders view your credit file. If you’re just looking for a quote or if you don’t really need the loan, avoid hard searches.
  • Register to vote. Joining the electoral register helps lenders verify that you are who you say you are. It’s quick, it’s easy and it’s vital if you want to vote in any upcoming elections, and it’s probably one of the easiest ways to improve your credit score.

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