Improve your chances: Use these tips to boost your credit score
‘Credit scoring’ is a much mis-used term. The actual meaning is discussed elsewhere on this site, but for the purposes of keeping it simple for this guide;
“credit scoring is used to produce an application score when a lender assesses whether to approve a loan or product to a customer. If the application score is higher than the pass-score for the product, the customer is approved. If the application score is lower than the requirement, then the customer is declined”.
Banks and other lenders will tell you credit scoring is all about risk – they want to protect their capital by not lending it to those who fall into groups that have in the past shown difficulty in repaying. A cynical view is that credit scoring is more about profit – lending capital to customers who will show the largest return to the lender. The truth probably lies somewhere in between these two views.
With this in mind, let’s look at 10 key areas in which you can improve your application score. Each of these ‘tips’ might only improve your score by a few points, but remember that there is an ‘approval’ score for each product, so just a couple of points can easily be the difference between being accepted or being declined.
1. Ensure you are on the electoral roll with your local council and that your address details appear on the electoral roll exactly as they appear on applications and existing accounts. You can see how your name and address appears (or doesn’t appear) on your credit report. This will be the same as it appears on any polling card you may have received in the past year for local elections. Your address may cause issues for the lender’s systems if it has a number AND a letter, or for instance is a house recently split into flats and the Royal Mail was not notified of this. If you experience problems in the way your address appears, for instance it shows differently on the electoral roll to the Royal Mail postcodes site, you may want to contact the Royal Mail to sort this out – 0845 6011 110.
2. If you have one, always quote a land-line phone number, even if it is ex-directory and even if the telephone line account is not in your name. All credit application forms will have a section at the end where you can stipulate how your contact details can and cannot be used, so this is not an invitation to receive unwanted marketing calls. However many lenders do see a land-line phone number as a sign of your stability, and as such many will add points to your application score for including this detail.
3. Check you don’t have any old, possibly dormant accounts registered at an old address. It might be you have an old mobile contract or disused credit card – if the account is still showing as open and you had a different address this can affect applications due to ID checks that are made. Check your credit files and check every active account to ensure the address showing against it is current and correct. If you do find old or dormant accounts, make sure they are closed off.
4. Cancel unused credit cards and score cards. Whilst an unused account is a good indication that you’re not in financial difficulty, lenders count the available credit available to you on existing accounts. As an example, say you have an unused store card with a limit of £2000, and an unused credit card with a limit of £7000 and apply for a loan of £10,000 – the lender might consider your liability to be £19,000 even though you aren’t using, and have no intention of using, the credit or store cards. For this reason, close off any unused credit cards and store cards – this also makes you less susceptible to fraud through the interception of replacement or renewal cards in the post.
5. Pay down your credit cards. When a lender requests your credit information part of the information they can see are your credit card balances at the last statement date, set against the credit limit on that account. Clearly, if you are at 90% or even 95% of your credit limit, this reflects badly – ideally you should be under 50% of your limit. If your last month’s status on your credit report was an overlimit or missed payment, you would be advised not to apply until your account is back in order. Don’t miss payments – even if there is a very small amount owing – as this is always viewed very negatively by automatic scoring systems.