When it comes to understanding what makes up your credit history, it can be tricky interpreting the jargon and separating fact from fiction. Don't worry though, help is at hand in part 2 of our guide.
If you missed part 1, you can find it here.
“once you’ve got your credit report in front of you, read through it carefully to make sure that all of your information on there is correct and up-to-date...”
You can check what your credit history shows about you by accessing your credit report through one of the three credit reference agencies, Equifax, Experian or Callcredit. All of them must by law provide you with your “statutory credit report” although they are allowed to charge £2 for it. Once you’ve got your credit report in front of you, read through it carefully to make sure that all of your information on there is correct and up-to-date. This means your address needs to be noted down correctly as well as your surname (for example, check it shows your new name if you’ve recently got married).
If you find something on your credit report that shouldn’t be there – for example, a missed payment that you have evidence of paying – contact the relevant company and ask them to update this information. Be aware however that, just because something was a long time ago doesn’t count – the information will remain on your credit history for six years so a missed payment, an insolvency solution such as an IVA (Individual Voluntary Arrangement) can’t be removed before then.
If you took out credit with an ex-partner or even an ex-flatmate in the past, then make sure that you are no longer linked to them on your credit report. If you check and find that you are, you can contact the company that holds your report, and ask them to put a ‘notice of disassociation’ on there. Doing this will stop your ex’s credit history from having the potential to affect yours. Close down any joint accounts that you have with your ex as well, as you don’t want a lender to assume that your partner has any influence over your income, especially if they’ve got a bad credit history.
“making lots of credit applications in a short period of time could make you look desperate for cash...”
As we have said, the most important thing you can do to build a good credit history is to keep up with your monthly repayments on any credit you’ve already got. Here are some other factors that will also make a difference.
Not being on the electoral roll - your political viewpoint isn’t important to credit agencies, but the fact that you’re on the electoral roll is – this information is used to confirm your identity. So if you’ve not done so already, register to vote here, though you don’t have to actually vote.
Having unused credit accounts - as lenders want to know that you’ll be capable of paying off what you borrow, they will look at how much other credit you already have available to you. If you have quite a lot, lenders may offer you a lower limit or be put off completely as they could think you won’t be able to cope with taking on more credit – so make sure that you close down any accounts that you no longer use.
Making lots of credit applications - if you’re rejected for credit, don’t make lots of applications in the hope that you will be approved for one. In most cases each application that you make for credit will show up on your credit report, so making lots of credit applications in a short period of time could make you look desperate for cash.
Having a current account – lenders will want to see that you’ve got an active current account and that your income goes into it (and ties up with the amount you’ve told them you earn). In most cases they will expect you to set up a Direct Debit on your current account to make your repayments.
Relying too much on an overdraft – dipping into your overdraft every now and again isn’t a crime, but try not to rely too heavily on it. Being in your overdraft for an extended period (e.g. months or years at a time), could give the impression to a lender that you’re struggling with your finances.
Not having credit – if you’ve never taken out credit, your credit report won’t demonstrate that you can manage credit responsibly. It may sound strange, but a lender can’t view you as a responsible borrower until you actually borrow money and pay it back on time. You may want to look into applying for some sort of credit to demonstrate to lenders that you’re able to manage credit responsibly.
Moving around too much - lenders like to see signs of stability, so if you change your address a lot then this could work against you. Don’t get us wrong, we understand that life can be unpredictable, but just living at one address and putting down the same job title on every credit application you make can help to improve your credit history and help you avoid problems with fraud checks – so try to do this as best as you can.