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Your credit score and how to improve it - Sarah Pennells, SavvyWoman.co.uk

Your credit score and how to improve it

There’s no doubt that banks and other lenders are turning down far more requests for credit than they were before the recession (remember those days, when all you seemed to need to get a loan was an address and a pulse?). Part of that process of assessing whether or not you’re a good risk involves checking information about how you’ve repaid loans you’ve already taken out, but it’s not only information from your that goes into the mix.

Prospective lenders will also look at whether you’re a homeowner or a tenant, how long you’ve lived at your address and how recently you’ve changed jobs (and sometimes whether or not you’re married!). This – and other information – determines your credit score. The higher the score, the better the risk you’re seen to be and the more likely you are to be able to borrow money (and at a typical interest rate rather than something you could mistake for a phone number).

So how can you find out about the information that lenders use and can you improve it?

• Credit reference file: This is the starting point for lenders. Three credit reference agencies (Experian, Equifax and Call Credit) compile information about how you repay loans and credit. If you’ve ever been declared bankrupt, had a county court judgement registered against you (called a ‘decree’ in Scotland) or been in default of an agreement, this will remain on your file for six years. Other information, such as whether or not you’ve made payments on time, stays there for at least a year.

• Get hold of a copy of your credit reference file: You can do this by paying £2 to each of the credit reference agencies. There is a lot of duplication between them so you may be OK if you get hold of your file from two out of the three agencies. However, if there’s anything on the file that’s inaccurate or that could cause a problem, make sure you go to all three.

• Get any mistakes corrected: If there’s incorrect information on your file, you have the right to get it corrected. Information is supplied by lenders so the mistake may lie with them. However, the easiest way to get it sorted out is to contact the credit reference agency. They should go back to the lender to find out whether there’s a mistake and, if so, get it corrected. In the meantime, the credit reference agency should flag this information as disputed, which means that another lender cannot rely on it when working out whether or not to give you credit.

• Register on the electoral roll: the electoral roll is still the main way that lenders verify that you are who you say you are.

• Improve your credit score: Different lenders have different ways of working out how good or bad a risk you are. They’ll take a range of factors into account (anything from whether you have a landline to how long you’ve been in your job) and will come up with a number – your credit score – to determine how much of a risk you are. Because most lenders are so secretive it’s impossible to work out exactly what will increase your credit score, but a good tip is to minimise the changes. Lenders don’t like it if you have a lot of change in your life because they perceive it as something that makes you a riskier prospect. For example, if you’ve recently changed jobs, don’t switch your bank account until after you’ve been given the credit or loan – if you do, you could harm your credit score.

Sarah Pennells

SavvyWoman is the brainchild of Sarah Pennells, who's a well known personal finance journalist and broadcaster. Sarah has appeared regularly on BBC Saturday Breakfast and writes for several magazines. (photo: Simon Brown)

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