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Date: May 19, 2019
‘Insiders guide’ to how tenants can improve their credit rating

When we assess tenancy applications we keep seeing the same mistakes that will harm applicants’ credit ratings. If your credit management is hurting your tenancy application it is also hurting your future chance of finance for a phone, car and mortgage. Here is E-lettings guide to a better credit rating ….and it is easier than you think.

Key Points

  • Different businesses use different credit checks but there are key actions that will improve your credit score in almost all cases
  • If you do not use any credit your credit score will be poor
  • Pay your bills on time
  • Don’t use all your available credit
  • Avoid high risk credit like payday loans
  • Check your credit file for mistakes
  • Register on the electoral roll
  • Don’t keep credit open you do not use
  • Check if you are linked to another person with poor credit history

What is a credit check?

A credit check is an assessment of your suitability for credit using your current and past financial information.

Businesses use different credit checks depending upon the type of credit they want to offer you.

For instance the credit check used by a credit card company is very different from the one we use as a landlord. Credit card companies want people who don’t always pay off their balances whereas landlords want someone who always pays off their rent balance.

However, these are some actions you can take that will improve your creditworthiness almost all the time.

What is a credit rating or score?

A credit check contains a credit rating or score which is a measure of your ability to handle credit.

The rating/score is calculated by the companies who supply businesses with credit checks – they are called rating agencies. Rating agencies can calculate the rating as they monitor all your loan, finance, direct debit and credit card payments. In the UK, there are three rating agencies: Equifax, Experian and TransUnion (who use to be Callcredit).

11 Ways to boost your credit rating

1. For a good credit score you need some credit

If you use no credit then you will have a poor credit rating as the credit score is a measure of how well you manage credit. Your credit rating has to be generated by use of credit like credit cards, loans, mortgages and phone contracts.

Specialist credit cards and loans are available which are designed to help you build a credit history. 

2. Pay your bills on time

Rating agencies love people who always pay their direct debits and other regular credit payments on time. It proves you are responsible with your finances.

3. Don’t use all your credit

Rating agencies will look at outstanding balances and how much or your credit limit you use. Your credit rating will suffer if you max out your credit limit.

The general advice is to keep your usage to 30% of your credit limit.

4. Register to vote

If you are not registered to vote on the Electoral Register (sometimes call the Electoral Roll) you will find it hard to get credit. Lenders use the Electoral Roll to check you live where you say you do.

5. Think before you apply for credit

Rating agencies look at the patterns in credit applications. They will reduce your rating if you make multiple applications in a short period or make applications immediately after being turned down for credit.

6. Check if you are linked to another person

If you are linked with someone for credit then their credit file can be assessed as part of future credit applications you make. When you are linked to someone with a poor credit history this will damage your credit rating. If you have any doubts, keep your finances separate.

The credit products that are linked in this way are: Joint loans, joint bank accounts (savings accounts don’t appear on credit files), joint mortgages and in some cases, utility bills.

7. Check your credit file for mistakes

The three credit rating agencies in the UK (Experian, Equifax and TransUnion) all hold details about your credit and payment history – called a credit file. The info in the credit file is the data used to generate a credit check and credit rating. You should check your credit file for any mistakes. And check it for each of the three rating agencies.

New laws introduced in 2018 allow you to receive your credit file for free. Apply directly to each of the credit rating agencies.

8. Update old addresses on your credit file

If you have available credit that is registered at other addresses other than you current address this could harm your credit rating. We see a lot of former addresses linked to credit in our landlord credit checks and we suggest you update the addresses.

9. Close unused credit or store cards

If you have unused credit or store cards this flags up that you have access to unused credit. Even though it is unused, the credit rating agencies may assess you have too much credit which downgrades your rating. It is best if you close down unused cards and only keep cards you use regularly.

10. Don’t withdraw cash on a credit card

Many lenders will mark down your rating if you have withdrawn cash on a credit card.

11. Avoid high risk credit

Avoid payday loans as it is an indicator to lenders that you struggle to handle your finances.

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