How can I improve my credit score?
If you’ve got your eye on a new car, and you know you’re going to need finance to pay for it, it’d be a good idea to make sure your credit score is the best it can be. And, if you’re wondering why this is important, we’ll explain.
Why is my credit score important when applying for car finance?
When you apply for credit, like car finance, the lender uses a number of things to determine whether they want to lend to you and, if they do, at what rate.
If you have a great credit score, you will usually be offered the best rates. If you have a less-than-perfect credit score, or you have no credit history because you’ve never borrowed before, you may find that you are declined, or the finance you’re offered is at a slightly higher rate. This is because you will be viewed as being a higher risk than someone with a great credit score.
So whatever you can do to improve your credit score, is a good thing. Because it means you’ll potentially get a better rate of interest on anything you borrow, which means you’ll pay less in the long run.
How do I know what my credit score is?
You can check your credit score easily online using Clearscore.
However, Clearscore are not the only credit reference agency, there's Noddle and Experian too. So you would need to check these as well. This is because credit reference agencies do not share data, so just because there’s no mistake on the report from Cleascore, doesn't mean there isn’t one on the others.
You will need to give your payment details if you want to access reports from Experian or Equifax. But you get a 30-day free trial, so you’ll just have to make sure you cancel the subscription before the free trial is up.
To avoid having to gain access to all three, you could, if you have the time and patience, contact each of your lenders and ask which of the credit reference agencies they use.
What can I do right now to improve my credit score?
Now that you know what your credit score is, what can you do to improve it, if you need to?
There are five things you can do right now to make sure that your credit score is the best it can be.
1. The first is to check that you are on the electoral register.
If you vote, you’re on it, so no need to worry. If you’ve never voted and have never received a voting card, you are probably not on the register, unless you’ve moved house and not informed them. And, if you’re not sure whether you’re on the register or not, you can find out by contacting your local Electoral Registration Office to ask.
There is one thing to bear in mind when you add yourself to the electoral register – who can see your details. The register shows your name and address details and it’s available for sale to individuals, companies or organisations, who want to buy it (yes, it does happen). If that idea makes you feel uncomfortable, you can choose to opt out of the open register. This means that no one, including credit reference agencies, will be able to see these details.
This is important because it’s used as a way for your details to be confirmed, which improves your credit score.
2. The second is to examine what’s actually on your report and make sure it’s correct.
It can sometimes happen that things will appear on your report that shouldn’t be there. When this happens you need to do something about it.
You should, in the first instance, speak to the agency themselves. By law, they have 28 days to either justify the information being on the report, or remove it. During this time, the entry will be marked ‘disputed information’, which means that lenders are not allowed to take this into account when they are making decisions on whether to offer you credit.
As the information detailed on your credit report has come directly from the lenders, it’s also a good idea to speak to them about it too. If they agree that it’s a mistake, they can inform the agency and get it corrected.
3. The third is using the ‘notice of correction’.
Imagine this scenario and see if it rings a bell with you. You were made redundant four years ago and you missed a few bills payments. This resulted in you getting a couple of defaults, which damaged your credit score. Now you’re back in work and you’ve never missed a payment since, but lenders can still see those defaults and it’s still affecting your chances of getting credit at the best rates available.
This is because defaults stay on your credit file for six years. And a lot can happen in six years – your whole life could have changed. So, it does seem a little unfair that you should still be affected by it. That’s where a notice of correction comes in useful. It allows you to add a note to your file that explains why you fell into debt, and lenders will take this into consideration when assessing your application.
4. The fourth is to stop applying for credit.
Each time you apply for credit, the lenders will, unless they specifically state that they do a soft search, carry out a hard search on your credit report. What this means is that there’s a note on your file that the lender has checked it that other lenders will be able to see. If the lender carries out a soft search, only you will be able to see that the lender has been checking your file.
If you apply for lots of credit, in a short amount of time, potential lenders will probably look unfavourably on it. They’ll assume that you cannot manage your money and that you are desperate for credit and because of this, will refuse you credit. Or you may be offered it, but at a much higher rate.
5. And the fifth and final quick fix is to cancel any credit cards you are not using.
Cancelling credit cards you are not using is a good idea. This is because other lenders always take into account the amount of credit you already have access to when assessing new applications. Say, for example, you have five credit cards, all with a limit of £2,000, that’s a total of £10,000 credit you’ll have access to.
Potential lenders will look at that and ask themselves how you’d manage to pay it all back, if you maxed them all out, even if you’re not actually using them right now.
And we’re done! If you follow these instructions, you should see an improvement in your credit score quite soon, which will be so much better for you when you do get around to applying for finance.
If you want to know more about applying for car finance with a less-than-perfect credit score – here you go – Can I get car finance through Zuto if I have a bad credit score?