Updated: Apr 21
If you are a first-time buyer, you may be asking yourself ‘What is a credit score?’ and that’s a valid question because chances are, you probably haven’t really been taught about your credit score or credit history at all.
There’s also a chance you do know what a credit score is, but you don’t really understand how to improve it, well that’s where we come in.
What is a credit score?
Simply put, your credit score is a number which is generated from your credit behaviour over the last 6 years.
It’s then used by lenders to decide how reliable and likely you are to pay back what you owe (a mortgage, bank loan, Credit card etc…). This number is based on many factors such as the lender being able to confirm where you live (electoral roll), past history of being on time with payments, how close you are to your credit limits, the number of commitments you have and the type of credit that you maintain.
The reason lenders use credit scores is that it gives them a feel for how you might act based on six years of past behaviour!
How can I boost my credit score?
There are many, many ways you can improve your credit score, but it’s important to note that these will all take time, so if you are thinking about applying for a mortgage in the near future it’s a good idea to get started on these months before starting your application.
12 Ways to boost your credit score
Get a credit card
You might have been told by a parent or teacher to never get a credit card because they’re ‘evil’ and can cause you to get into tons of debt. Sometimes that’s true but if you can manage this it can show a lender that you’re able to have credit and be responsible enough to manage it.
It’s likely that your first credit card may only have a £200 limit but if used responsibly, spending £50 a month, and paying it off by direct debit will show you’re able to maintain a credit commitment.
Set up Direct Debits
You might miss a payment from time to time. If everything was set up on direct debit you’re less likely to ever miss a payment, you can also set it up so that payments come out at the same time every month meaning you’ll know when to expect them.
Change from PAYG to a contract phone
If you’re a first-time buyer and you have a Pay As You Go (PAYG) phone you may not have any outgoings on your credit file at all. A contract phone will show that you’re able to make regular payments.
Get on the electoral roll
This is very simple to do and will make your mortgage application much easier.
If you are ineligible, you can add a note to your credit file that says you have other proof of address/residency.
Go to https://www.gov.uk/register-to-vote to register or check if you already have.
Close unused credit cards
Having multiple unused credit cards is seen as negative because you could potentially have the ability to borrow large sums of money by having another credit check.
As soon as you finish paying off a credit card and you’ve stopped using it you should contact the card company and ask them to shut it down.
It also means that you may have fewer issues in the future with fraud. These accounts can’t become fraudulent if they’ve been closed.
Get the timing right
Some lenders only take into account the last 3 years' credit history and some will look at the full 6 years. After 6 years most credit blips will drop off so sometimes it’s best to start with this in mind.
Presenting your credit report to a competent broker will mean they can explain it to you and let you know your next steps.
Don’t withdraw cash using a credit card
Lenders don’t like to see this. Some lenders charge a massive premium for taking cash from a card, from a potential lender's point of view it looks desperate. It’s expensive and it looks as though you can’t live within a budget and you’re desperate for quick cash.
When a potential lender looks at this they may not be overly happy.
Avoid being close to your credit limit
For example, if you have 2 credit cards that both have a £2000 limit, and you have £1900 on one card and £100 on another, the card with £1900 on it will cause concern as you are almost at the limit of your borrowing which will mean your score is likely to decrease.
Restructuring the debt to show that you have two lots of £1000 against a £2000 limit will mean less cause for concern.
Limit the number of credit checks
The credit scoring system in the UK has a failsafe mechanism built in. If a number of credit checks are applied for in a short space of time your score will decrease, as more and more accounts are opened your score is likely to get to a point where you can no longer get any credit.
It’s designed so that should someone steal your financial details and try to get 3 credit cards, 2 loans, 4 mobile phone contracts, and 3 payday loans your score will drop so low that no further accounts can be opened.
On a much smaller scale, having multiple credit checks for mortgage searches which coincide with renewing your car finance, obtaining new credit cards etc will cause your score to drop down.
If the new accounts are all genuine, don’t worry after a while it’ll start to creep back up.
Avoid payday loans
In the majority of lenders cases if you’ve used a payday loan company in the last year it's unlikely they’ll lend to you. Rates for these can be up to 1500% APR and could look to be desperate.
Get on a Utility bill
Being a first-time buyer means you may be likely to have very little credit.
Being on a utility bill at your family home will mean that you’ll start to appear as having paid the bill monthly when a potential lender looks at you.
Check your credit score regularly
We have previously had clients that received a parking ticket just as they moved house, which ended up being a CCJ, they only found out three years later when applying for their first mortgage!
We would urge you to use CheckMyFile as it uses all the credit reference agencies and will help you work out exactly what the lenders are looking for.
You can check your credit score by Clicking here to try CheckMyFile for FREE, then £14.99 a month - Cancel anytime online.
What should I do if I haven’t got any credit history?
Sometimes no credit can be just as hard as bad previous credit. It’s not always about past behaviour, sometimes it can be because you don’t have any credit!
A potential lender will have no idea if you’re able to live and manage debt if you’ve never had any before. You may want to look to take a small credit card and just put in a small expense per month that’s paid off in full.
So now you know what credit score is and how to improve it, hopefully, this will help you to get that mortgage you’ve been dreaming about for years.
Of course, your credit score isn’t the only thing you need to think about when applying for a mortgage, but it’s something that could get you better rates and more lender choices.
Click the button below to get in touch with a broker and discuss your options.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 18/04/2023