Buying a home

First-time buyer guide: How to maintain a good credit score?

July 9, 2021

Let’s start with the basics. A credit score is a number that is generated by an algorithm that takes the information from your credit report, which is typically updated on a monthly basis. Lenders and various other service providers use your credit score to determine if you are creditworthy and likely to make repayments on time.

What is a good credit score and how is it calculated?

According to Experian, a good credit score is between 881 and 960 and an average score is between 721 and 880. However, there’s no magic number that will guarantee lenders will approve a credit application. Also, lenders may have different views of what an ideal customer looks like to them, which will be reflected in how they calculate a credit score.

Although each credit bureau Experian, Equifax, Transunion has a different method for working out someone’s credit score, they all use basic personal information, along with financial history to see how likely that person will pay back any money borrowed.

In addition to that, every credit application leaves a footprint behind. Meaning, every time a lender, employer, insurer, landlord or debt-collection company looks into an individual’s credit history, they leave behind a footprint too.

There are two types of footprints: soft and hard. Generally for a mortgage DIP lenders take a soft footprint which is an enquiry and does not impact a customer credit score. At a full mortgage application, a hard footprint is taken which if there are many may adversely impact your credit score as detailed below.

A lot of hard footprints over a short period of time may sound like someone is desperate for credit or struggling to keep up with credit card payments and therefore considered damaging for a good credit score.

On the other end of the scale, it is good to know what qualifies a poor credit score, which is often linked to an individual’s history of failing to pay bills on time. Credit history is used to calculate the likelihood of said individual failing to make payments again in the future. The more likely that they’ll fail to make payments, the lower the credit score is.

According to Barclays, in order to keep a good credit score consumers should pay attention to the following red flags:

  • Failing to stick to the credit agreement: Making a late payment, missing a payment or paying less than is required by a credit agreement, all gets added to the credit history.
  • Choosing the wrong credit card: It’s important to choose a credit card that has a credit limit, interest rates and fees that will help the individual to stay on top of repayments and well within their balance limit. These are both factors that credit reference agencies use to decide your credit rating.
  • Only paying the minimum each month: It might be tempting to only repay the minimum amount on the credit card each month, but paying more than the minimum can mean spending less on interest and potentially improving the credit score.
  • Identity theft: Imagine doing everything to keep a credit rating in great condition, only for someone to compromise your credit cards, run up huge bills and damage your rating.

Why do you need a credit score?

Your credit score is calculated from the information in your credit history. Lenders will use your credit score to help make decisions on the following:

1. Whether they will lend to you

2. How much they’re willing to let you borrow

3. How much interest they’ll charge you

The most recent information in your credit history is deemed the most important as lenders are interested in your current situation. However, your financial history, good and bad, from the past six years will be on record.

How to improve your credit score to get a mortgage

When you apply for a mortgage, lenders will use your credit history to understand how you manage your finances. As well as checking your credit history, they’ll also request to see your income, savings and monthly outgoings. The reason for these credit checks is to ensure you’ll be able to make your monthly repayments, even if current circumstances change. A change in circumstances could be things like your monthly income decreasing, outgoings increasing or interest rates going up.

Regardless of which type of mortgage loan or home plan you’re applying for, you must show yourself in the best light. In addition to budgeting responsibly, improving your credit history will help you secure the best mortgage term. Read on for some of our top tips on improving your credit score.

Register on the electoral roll Perhaps one of the most straightforward tips to improve your credit score is registering on the electoral roll. Whether your current address is single-occupancy, shared accommodation or living at home with your parents, it should be registered. Go to the GOV.UK website to register.

Keep on top of your bills Paying your bills on time and in full each month is an excellent way to show lenders that you can responsibly manage your money. From your utilities to car insurance and your phone bill, keeping on top of payments goes a long way. Generally, old, well-managed accounts will improve your credit score.

Keep your credit utilisation low Credit utilisation is how much of the credit available that you use. For example, if you have a credit card with a limit of £5,000 and you’ve used £3,000 of that, your credit utilisation is 60%. Typically, using less of the credit available to you will be favourable to lenders and benefit your credit score. If you can, aim to keep your credit utilisation around 25% or lower.

Check for any errors on your file It’s worth checking your credit score file for any mistakes. Even a minor error in your address can affect your credit score. So, be sure to double-check the details and flag any incorrect information right away.

Check if you’re linked to another person If your credit rating is linked to another person through a joint account, their credit score could impact yours, particularly if it’s poor. So, if you’re linked to a spouse, family member or friend, this is an important consideration.

Check for any fraudulent activity If you’ve flagged something incorrect or doesn’t apply to you on your credit report, you should contact the credit reference agency to have your file updated. For example, if someone has applied for credit in your name without you knowing, you should flag this immediately.

See if you could get an instant credit score boost Some credit score checkers such as Experian will allow you to connect your current account to your credit score account securely. By doing this, you can showcase how well you manage your money. For example, they may look at regular outgoings for things like Apple Music, Netflix and car tax. In addition, they’ll be able to see when you’re moving money into saving and investment accounts.

Build your credit history A common hurdle young people and people who are new to the country face is a lack of credit history. Having little or no credit history makes it difficult for lenders to assess your eligibility. In addition to the tips we’ve listed above, you may choose to take out a credit card or a small form of a credit to build your credit history.

For example, taking out a mobile phone contract is usually relatively easy, but it is a good way of demonstrating that you can make repayments on time each month. For credit cards, the best practice is to pay them off in full and on time every month, showcasing you are financially responsible. Remember, you should never take out credit you can’t afford.

How long will it take to improve my credit score?

Negative marks on your credit history, such as county court judgements (CCJs), missed payments, loan defaults, and bankruptcy, will remain on your file for at least six years. After that, they’ll be removed.

Improving your credit score isn’t something you can achieve overnight. Generally, credit history is something that is built up slowly over time. When you follow our tips, you can expect your credit score to increase slowly but surely. While improving your credit history is a long game, it’s certainly worth doing. Although it’s possible to get a 'bad credit mortgage, it’s something you should try to avoid. Instead, embrace responsible money management and patience; it will pay off in the long run.

We’ve made it our mission to offer a wealth of resources on our blog, from buying a home in your 20s to everything you need to know about alternatives to mortgages, be sure to check it out.

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