More than half of us don't know our credit score, according to market researcher YouGov. Given that your credit rating can decide whether you are approved for a mortgage or loan, what interest rate you pay on your credit card and whether you can get your pick of current accounts, it's surprising so many of us have never looked at it.
The big three credit-rating agencies Experian, Equifax and TransUnion hold data on 50 million British adults. "These companies can see into our financial souls," says the Financial Times. "They can use our borrowing history including any past mistakes to predict how likely we are to repay in the future."
A bad credit rating can mean you are rejected from mainstream credit deals. So you won't be able to get those mortgages, loans and credit cards that you see in the best-buy tables. But it isn't as simple as having a good or a bad credit score: there are many categories between the two that can affect your finances. For example, have you ever applied for an interest-free credit card only to find you are accepted, but offered a shorter 0% period than advertised, or your credit card has a higher interest rate than was advertised? This is a sign that your credit rating isn't bad, but it also isn't good. Lenders reserve their best deals for people with top credit scores.
If you've never checked your credit score because you've never been rejected, you could still improve your finances by taking a look and seeing what you can do to boost your score. Check your rating for free with ClearScore or by using checkmyfile.com's 30-day free trial.
Simple steps to take
Once you've checked your report, sort out any problems with it. Unless you have had serious debt problems in the past (such as being declared bankrupt), it is relatively easy to improve your credit score.
First, make sure the information held in your report is accurate. If it isn't, contact the credit agency and ask it to make corrections.
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Then, make sure you have as much information as possible on your report (it's not unusual for firms to reject people because they don't have sufficient credit history). Check that your bank has passed on information about your current accounts, credit cards and any other products. If you aren't registered on the electoral roll, do this too, as "if you're not on the roll, it's unlikely you'll get any credit", says Martin Lewis from MoneySavingExpert.com. This will improve your rating, as it shows you have roots at a particular address.
Paying your bills on time also improves your score, so set up direct debits to ensure nothing gets missed. Make sure you are named on household bills, and have a bank account registered at your address.
If you have split up with someone with whom you shared a joint product, such as a mortgage, make sure you inform all the big credit reference agencies including Experian and Equifax. Ask for a 'notice of disassociation', otherwise, your credit report will remain linked to theirs. If they subsequently rack up a bad debt it will reflect badly on you.
Finally, don't assume that you have a good credit rating just because you've not taken out a loan before. "Lenders like to make informed decisions," says Vicky Shaw in the Daily Mirror.
"If you have limited or no credit history, then lenders have insufficient financial information about past behaviour to use when making their decision."
Consider taking out a credit card and repaying your balance in full each month to boost your rating. Opt for a rewards credit card and you can earn cashback, air miles, or loyalty rewards while improving your credit score.
