In November of 2015 Barclaycard, linking up with credit reference agency Experian, became the first big UK financial institution to offer its ten and a half million customers free and regular online access to their credit score. In December of the same year, Tesco Bank, working with Noddle (part of credit agency Callcredit) began providing Tesco’s “foundation card” customers with free access to their credit scores, with the service remaining free for three years. Other financial institutions are following suit in the wake of growing customer awareness of just how important one’s credit rating really is. There’s really no excuse anymore for not knowing this crucial bit of data, and there are more reasons than ever that you should know it.
Why your credit rating is so important
We Brits have long had a different attitude about personal financial data than, say, the US. Americans seem more open about their credit scores, to the point that there is even a US dating website called CreditScoreDating, devoted to aiding singles in the quest for someone who is…well, financially compatible. But on this side of the pond credit agencies have been much more in the background, and the whole area of credit scores and such hasn’t been a popular topic of conversation. In fact recent research revealed that two out of three people in the UK have never even checked their credit score. That’s a mistake, and can leave one open to a rude awakening when applying for a personal loan or a mortgage – or for that matter, when searching for a new job or a place to live.
Credit reference agencies – Experian, Callcredit and Equifax are the main ones in the UK – don’t actually decide whether or not you get credit. That’s up to the lender. The agencies just aggregate your data and come up with a score, based upon your credit report. Your credit report is a comprehensive record of all of your borrowing, current and savings accounts, utility bills, mortgages, and a lot of public record info about you, including where you live and whether you are registered to vote.
Lenders in turn use that score to determine how high a risk you are: the lower the score the higher the risk, and the more you’ll pay on financial products such as loans. According to Experian, which is the UK’s biggest credit agency, the majority of people fall into its “fair” range, 721-880. A score of 881-960 will get you better deals but will still lock you out of the best, but 961 and above are considered “excellent”. On the other end of the spectrum, a score below 560 is considered to be “very poor”, and an indication that you are having major money problems.
A low credit score can do more than keep you from getting the best deal on a loan or mortgage. Increasingly people with poor credit are being turned down for everyday products and services such as mobile phone contracts or car insurance. Employers and landlords are also likely to look at your credit score and turn you away if you don’t meet a certain minimum. That may not seem entirely fair, but knowing that this is the way things are is the first step in doing something about it if you don’t “measure up”.
Options for people with bad or no credit
It isn’t that people with poor credit or no credit are completely devoid of options. They may not qualify for a big bank loan or a mortgage, but for those who need a relatively modest short-term loan, there are lenders who don’t require a credit check.
With a no credit check payday loan, you do not have to fill out long forms detailing your credit and employment history; most applications can be completed in a matter of minutes. Although the amount of the loan will be partially determined by your projected ability to repay, there generally is some flexibility in deciding the amount.
A few caveats are in order. First it’s important to know that you pay for the convenience of “no credit check” with high interest rates. Also, these are normally very short-term loans, usually 14-30 days, and if you don’t think you’ll be able to pay the loan back within that time, you might want to reconsider. If you have to “roll over” the loan, you’ll accrue even more interest, and it could end up being a very expensive loan indeed.
It’s also important to keep in mind that not all no-credit-check loans are alike. Be sure to comparison shop so you can choose the lender that offers the best deal and has a good customer service record.
Building or boosting your credit
A small personal loan can get you through a monetary crisis in the short term, but your best long-term strategy is to do everything possible to improve your credit. Building good credit takes time, and the best way to do that is to be a long-time holder of a few credit accounts. Stay within your credit limits and pay the money back on time. As well, having a stable address is very helpful, so if you move around a lot you probably can’t expect to earn a top credit rating. And you can’t have an “excellent” rating unless you are registered to vote, so do that as soon as possible.
It’s important that you check your credit report for any out of date items or errors that might be negatively impacting your score. Also close out any unused accounts, because if you haven’t used an account in years it can affect your “available credit” number, which might discourage lenders.
If you don’t have any credit, the best way to establish it is to open an account. But that can be difficult since you don’t have a credit history to indicate to lenders how reliable you are. You might consider opening a credit card for bad credit, using it, and then repaying it in full each month. Make sure you are making payments on time. Late payments can damage your credit. Even if it’s only for small amounts you’ll be building a credit history.
If you don’t know your credit score and aren’t aware of the data that the credit reporting agencies are keeping on you, you are, very simply, living in denial. The score may be lower than you’d like it to be, but that just means there’s room for improvement. In order to improve your standing, however, you first have to know exactly where you stand. Staying on top of your data and doing everything you can to improve it can make your life easier in many ways.