Recent figures show that the average Millennials credit score has risen by 4 points since the year 2016. This is more than any previous generation within the same time frame. However, this year the UK sees its population owing a total of £207.1 billion in consumer debt with the average household owing £7,616 in credit debt.
Building a credit score is somewhat of a grey area for some and the prospect of a credit default overwhelming. Here, the debt solution specialist Scottish Trust Deed sets out to set the record straight on how to build a credit score and gives us the need to knows on aligning with the regulations of the lenders.
1. Don’t Forget the past
The foundations of a credit score is built on predicting a consumer’s future behaviour. Lenders effectively analyse all the data that they have on you and align it with their criteria. If your reputation with credit has been poor in the past, it is worth shopping for a card that uses ‘soft searches’ only within the application process.
Soft searches mean that you can see reasons on your file, but other lender cannot. ‘Hard Searches’ ensure that all lenders can see the reasons that you may have been unsuccessful in your previous applications.
In turn, having no credit score makes it impossible to predict your future behaviour. In this case, obtaining a credit card that holds the objective of building a credit score is wise. Spend an amount each month that you can pay off IN FULL on each bill date. The interest rates may be higher on these types of cards however, if you are paying in full then this is irrelevant.
2. Timing is everything
Applying for a credit card is not the time to be impatient. CCJs (County Court Judgements) and bankruptcy appear on your file for 6 consecutive years. If the end of the 6-year cut off is in sight, wait for this period to end before making any credit applications.
3. Apply a Strategy
Applying a solid strategy to work on building your credit score can do wonders. David Baddeley at Scottish Trust Deed says, ‘Gaining 2-3 credit cards and using them once every month whilst ensuring that the balance is paid in full can be a very effective method in increasing your credit score. Every 3 months lenders tend to review their customers file. Working in this way can see that they increase your limit at each review. The aim is to set a limit and then stop once you hit that credit limit.
4. Get on the Electoral Roll
Ensuring that you are on the Electoral Roll means that lenders can trace an address history with ease. No record of addresses can easily lead to rejection, no matter how positive your score is.
Also, if you’ve moved to a new house, make sure old utility bills have been cleared. A simple oversight or forgotten bill can lead to defaults on your file which can hold future consequences. It is also vital that you check old loans and/or credit cards have been cleared.
5. I am overdrawn…but that’s not debt
This is a big misconception. If you have an overdraft, then it is important to stay within your limit. Exceeding the limit leads lenders to believe that you are anxious about gaining more credit and cannot manage your existing borrowing.
6. Acknowledge all previous accounts
Acknowledge and catch up with old debts that may still be showing as active on your accounts. Similarly, close any unused accounts. Credit reference agencies rely upon the lenders to provide them with information, which sometimes gets missed, and you must manually request the CRA to contact your lender to update the details
7. Have your say
Apply explanation notes to any defaults or CCJs that you may have occurred. Credit reference agencies allow consumers to explain to potential lenders who are viewing your file why you may have incurred the default/CCJ in the first place.