What is a credit score?
Let me start by talking about what a credit score actually is. Your credit score is a numerical value based on an analysis of a person’s credit history. Your history includes things like repayment history, your level of debt, the total amount of debt and other elements of your credit history. This numerical value helps a lender decide how likely it is that a borrower will pay back their debt if they do decide to lend. Simply put the higher your credit score is, the more likely you are to be accepted for the loan you have applied for. You could also get access to lower interest rates and higher credit limits.
If I have never had any loans, will I have a good credit score?
To get a good credit score you must have had credit in the past. It often comes as a shock to those who have never had a credit card or loan and have been good with their money, that their credit score is low. This can often affect first-time buyers who have perhaps lived at home with their parents and had no need for loans or credit cards. A low score doesn’t mean you are bad with money management, it just means you have no history. This score says to a lender that you are a bit of an unknown and it makes it difficult to assess how likely you are to repay your loan.
How do I improve my credit score?
One very simple way; and it has nothing to do with credit history; is to make sure you are registered on the Electoral Roll at your current address. You can even do this if you are living at home with your parents. The other more obvious method of improving your credit score is through well managed debt. The key is to make regular payments, on time and in full. Having a phone on contract; rather than pay as you go; can be a very simple way to improve your credit score. This shows to a lender that you are capable of handling debt responsibly.
What could be reducing my credit score?
There are some key factors which may be hiding in your credit report which are reducing your credit score. One of these is simply missed payments. It is important to keep on top of your monthly payments. Missed payments could lead to what is known as a default. This is where a lender closes your account due to repeated missed payments over a period of three to six months. Defaults can occur regardless of how much you owe. Both missed payments and defaults can have a negative impact on your credit score. It is important to keep up your monthly repayment in order to have a healthy credit score. Make sure you are aware of when your payments are due and putting aside money for this each month will help you plan for these payments.
County Court Judgments (CCJs)
County Court Judgments or CCJs are another factor that will negatively affect your credit score. If a lender thinks that you will not repay the money you owe, they may apply to the Courts for a CCJ, which is an instruction from the Courts that you must pay back the money you owe. If this happens generally you have a few options which include, paying back the full amount immediately, paying instalments or disputing the claim. A CCJ will stay on your credit record for six years regardless of if you pay off what you owe within this time. You could ask for it to be removed from your record if you paid the full amount within one month of the CCJ being issued or if you disputed the CCJ and it was cancelled by the Courts.
Debt Management Plan (DMP) or Individual Voluntary Agreement (IVA)
If you have entered into a Debt Management Plan (DMP) or Individual Voluntary Agreement (IVA) you may find that these will also lower your credit score. Both of these are agreements entered into with your lender to manage your debt and agree to a method of manageable repayment. The difference between the two is that a DMP is an informal agreement between you and the lender on a way to manage your repayments. An IVA is a legally binding agreement with your lender or lenders arranged by an Insolvency Practitioner.
I’ve never missed a payment, why is my credit score still low?
If you have been making regular payments and have managed your debt well but your credit score is lower than you think it should be, it is important to check your credit file for fraud or for any credit accounts you aren’t aware of. If someone were to get access to your personal details, they can apply for credit in your name without your knowledge.
Can I still get a mortgage or loan with a low credit score?
There are lenders out there who are willing to lend to people with a poor credit history. You may find that there is a smaller pool of lenders available to you but at Veracity Financial Planning our experienced Mortgage Advisers will help you navigate these lenders and find you the one who fits your current circumstances.
We will negotiate terms and rates for your finance needs, in some cases, lenders will offer us bespoke deals for our clients depending on the type of deal and the individual’s circumstances. Our advisers will work with you to find the most appropriate deals and explain to you any potential risks involved as well as the benefits.
We charge £499 for clients with credit history issues or where lending is limited to a small number of lenders or in complex cases due to complex personal circumstances. We charge £799 for clients with significant credit history issues.
If you want to discuss your credit score or are looking for a mortgage and have adverse credit history then Contact Us and one of our Mortgage Advisers will get in touch with you.