Fifi asks about how best to manage her money when her income from month to month fluctuates a lot with some months bringing in just enough for her to get by. She also wonders how best to manage her credit score and to boost her monthly income.
I give a broad answer covering:
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My husband and I want to buy a house, how can we go about improving our credit score?
This is an awesome question. I think lots of people come up against this issue at one point or another. Before I get into the detail, straight off the bat I’ll tell you what you don’t need to do, you don’t need to get a credit card. You can build excellent credit without a credit card despite what people say about needing a credit card to build a credit record and strong credit score. Now that I’ve got that off my chest let’s start from the beginning?
Firstly, what is a credit score and what’s it trying to achieve?
A credit score is a number that’s designed to be an indicator of your creditworthiness. This means that the credit score gives lenders an indication of how good you are at paying your debts and how likely you are to default and not pay them. Lenders only want to lend to people that are likely to repay that money and the credit score is an indicator of your likelihood to repay.
Your credit score is built up using all the information a credit reference agency has collected about you over time especially over the last 6 years; information older than 6 years usually doesn’t weigh into your score.
The credit reference agencies that you might have heard about are:
You can also go directly to Transunion or Crediva to get a credit report from but they don’t give you a score directly – they only do so via CreditKarma and checkmyfile, respectively.
If you want to improve your credit score you need to know what your current score is so you can track it. You can’t improve something if you haven’t measured. Credit scores work in the following way:
How come ClearScore and CreditKarma are free?
Both make money by selling products to their customers. But, in my opinion, the way ClearScore goes about it could land you in unnecessary debt so I wouldn’t recommend them. Under the credit information, there’s a section on ClearScore that asks you “How can I improve my credit score” and one of their pointers if you don’t have a credit card, is that you get one. CreditKarma aren’t so brazen.
I feel as though ClearScore keep my score artificially and strategically low to nudge me towards that credit card. So, if you do use ClearScore, know that even if you pay your debts on time, are current on all your bills and are essentially doing everything you should to be classified as financially responsible, you won’t get the top credit score if you don’t have a credit card. I am very anti-credit cards so I would never get one and this one aspect of ClearScore annoys me and stops me from using them.
With all this knowledge about the agencies, this is what I recommend you do to improve your credit score:
Firstly, get a CheckMyFile credit report and credit score. As I mentioned, CheckMyFile’s score is out of 1,000 and based on information from 4 agencies; you will be able to view a lot of the information that all 4 agencies hold on you.
Second, I suggest you check your credit score only (not the credit report) at Experian. Experian have a service where you can view your score anytime for free but you won’t be able to see the full credit report under that service. Because you are getting an Experian report via CheckMyFile there is no need to get it directly from Experian too, at least not in the same month.
The reason I am suggesting you get your Experian score (which is out off 999) is that I find their score very responsive to changes in your financial footprint. If you pay off debts and so on, the Experian credit score improves within a month or two and it’s actually possible to get a perfect Experian score of 999, I have had that several times.
In my experience, Experian’s credit scoring system is the most legitimate and reliable.
Make sure you unsubscribe from CheckMyFile before a month is up because they will start charging you £15 per month after that.
This will mean you lose access to credit reports and the checkmyfile score but that’s okay because you will have the Experian score and to check your credit report on a regular basis, just use CreditKarma. The level of detail Credit Karma has is actually very impressive. They actually have financial details on my profile that Experian seem to have missed and yet, outside of the little bits of missing data, Experian is generally the most comprehensive. FYI, Experian is not paying me to say any of this.
Okay, so what can you do to improve your credit score?
These are the things that will have a huge negative impact on your credit score:
In summary, what should you do to improve your credit score:
Hope this helps, Chrissy.
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Heather on Wealth
I enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™.