Top 10 credit myths
With a higher credit score you’ve got more chance of being accepted for credit, at the best rates. So a high credit rating can mean you’ll get a better deal on a credit card, a lower rate on a loan, and pay less interest on your mortgage – meaning it can save you money.
Your Experian Credit Score is based on information in your Experian Credit Report and gives you an indication of how lenders may view you.
So how do you get a good credit rating? Follow our step-by-step guide:
Get on the electoral roll. This should be easy to do if you’re a British or EU citizen. Lenders will check your name and address to prove that you live where you say you do. You can do this even if you are still living at home with parents, or sharing student accommodation. This makes it easier for banks and financial institutions to confirm your identity.
Having accounts such as a bank account could really help. Initially, taking out a new account might see your score reduce a little, but managing it well should help to improve your Experian Credit Score whilst building your credit history. A bank account with an overdraft facility is a form of credit and can show that you can keep within its spending limits.
Lenders typically like to see previous borrowing history. Taking out smaller forms of credit like a mobile phone contract, store card or credit card could be easier to get accepted for. If you manage them well, they should show that you can pay bills responsibly and on time each month.
Consider closing unused credit accounts if you no longer require them. Lenders can take into account the credit limits available to you, not just what you currently owe. It could be better to have fewer, well-managed accounts, and long-standing accounts with good histories.
Applying for lots of credit can suggest you are over reliant on credit to supplement your income. If you can, aim for no more than one application for credit in a three month period – this could be applying for a credit card, debit card, mortgage…even a car finance deal.
Having new credit accounts may result in a decrease to your Experian Credit Score. However, as your accounts get older, having multiple accounts which you are managing well could have a positive effect on your Experian Credit Score.
Your ‘available credit’ is the difference between your outstanding balance and your credit limit. If you have low available credit, or a large number of your accounts are using above 50% of your available credit, banks and financial institutions may think you’re struggling to manage your finances.
Any missed payments in the last six years will have a negative effect on your Experian Credit Score. As your late payments become older they reduce the negative effect on your Experian Credit Score.
Accounts become delinquent when you’re late on payment. Accounts are defaulted when the borrower fails to repay the loan as scheduled in the initial agreement. Defaulted accounts will drop off your credit report after six years so long as they are satisfied.
County Court Judgements (CCJ), Bankruptcy, Individual Voluntary Arrangements (IVA) and Scottish Trust Deeds will have a negative effect on your Experian Credit Score for six years from the date the entry was recorded. These records should not appear on your credit report after six years as long as they have been settled/discharged.
Look out for unfamiliar or suspicious entries in your report, such as an account you didn't open, a sudden surge in the amount you owe or new credit applications you didn't make - they could mean you're a victim of identity fraud.
If you have a credit history from a previous country, some lenders may be willing to take this into account when deciding whether to do business with you. You’ll need to get it from the credit reference agency in that country, and share it with the lender, but it could be a big help.
Experian CreditExpert provides more than just your credit report, including: