Q&A: How can I improve my credit score so that my husband and I can buy a house?

The Money Spot™ - UK Personal Finance · #5 How can I improve my credit score so I can buy a house?

 Hi Heather,
 
My husband and I want to buy a house, how can we go about improving our credit score?
 
Chrissy
 
Hi Chrissy,
 
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:

• Experian and
• Equifax

They are the household names – but there are lesser known agencies or associates of agencies that you can use; these are:

• Credit Karma – which uses TransUnion data,
• ClearScorev– which uses Experian data, and
• CheckMyFile – which uses data from 4 credit reference agency – Experian, Equifax, Crediva and TransUnion.

 
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:

• CheckMyFile (score out of 1,000, free for a month then £15/month).
• Experian: score out of 999, free for a month then £15/month
• Equifax: score out of 700, free for a month then £8/month
• Credit Karma: score out of 850, free for life), and
• ClearScore: score out of 700, free for a life.

---

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?

1. First things first, if you identify any errors on your credit report, get that corrected straight away.
2. You don’t need to have a credit card to improve your score but you do need to have credit. Things that count as credit include mobile phone contracts (not pay as you go contracts), broadband/TV/Phone contracts, utilities (e.g. water, gas, electricity). Make sure you and you husband both have 2 or three utilities in your name. Some suppliers will allow two names to appear on a bill and where this is the case, have both you and your husband named on that bill so you can use the same bill on mortgage applications.
3. Pay your bills on time ALL THE TIME. Don’t wait to get a reminder because your credit report will show how late you were with a payment. Best way to keep up to date with bills is to just have everything on direct debit.
4. For at least 6 months before the mortgage application don’t take out any new credit. This means don’t get any new loans, credit cards or even phone contracts because your credit score dips down every time you do this. Applying for credit from too many parties within a short time-frame can suggest someone is in financial trouble that’s why your score dips once your credit profile is pulled by a potential lender.
5. Pay off your debts. I once wanted to apply for a mortgage and pulled up my credit score. I had only one consumer loan on my credit record and I thought it was pulling my score down. I paid the loan off in full and a month later my score was back to 999 on Experian so paying your debts off is a very effective way to improve your credit score.
6. Make sure all your contracts are updated with your current address – banks, utilities, store cards, credit cards etc. If you move house always update the address; having multiple current addresses makes it seem like you will be hard to track if you default, this is why lenders like people that have been at the same address for a long while, this bring me to the next point.
7. Don’t move house a lot if you can help it. Lenders feel more confident in lending to someone if they have a stable home, once you have lived somewhere for at least 3 years, you look stable.
8. Remove any financial associates with a poor credit record. They will pull you down. Your credit report will show who your financial associates are these are people that you have applied for credit with jointly. If you have a joint mortgage with the financial associate you won’t be able to remove the association without paying off the mortgage. However, I am assuming you don’t have any mortgages right now so it should be easy to remove credit-poor financial associates, for example, if you have an ex-partner that you had a joint account with and if that account hasn’t been closed yet, close it down – even if it’s dormant and unused that financial associate will affect your score.
9. Close any unused lines of credit, this includes credit cards, store cards, direct debits and mobile contracts.
10. If you absolutely feel you benefit from having a credit card, for whatever reason, then pay it off in full every month. That habit will have the best impact on your credit score.

 
These are the things that will have a huge negative impact on your credit score:

• Having county court judgments, defaults or bankruptcies has a huge negative impact on your credit and these stay on your profile for 6 years.
• In fact, even late payments are visible on your credit profile for 6 years before they are expunged but they don’t have much of an impact on the score after a while.
• Also, having fraudulent activity associated with your name will not help your credit score.

 
In summary, what should you do to improve your credit score:

1. Go to checkmyfile.com and sign up to get your credit report and credit score. Save the credit report.
2. Go to Experian and get your credit score only.
3. Sign up to CreditKarma and get your credit score only.
4. Change all the behaviours I’ve discussed
5. Go to the settings in checkmyfile and cancel your subscription within a month, that is, before they start charging you.
6. You will be able to track your credit score via Experian and Credit Karma going forward.
7. Check your Experian score monthly.

 
Hope this helps, Chrissy.

---

Have a money question for me?

If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.

• Join my private Facebook group on Personal Finance
• Download the latest Life Planner now