Your Credit Score

Wednesday 20 March, 2019 Money Advice

What is a credit score?

A credit score is a number that reflects the likelihood of you paying your credit back. Lenders like banks and credit card companies will look at your credit file when they calculate your credit score which will show them the level of risk when lending to you. The higher your credit score, the more likely someone is to lend you money.

Your credit score can have an affect on many things, such as;

  • Mortgage
  • Phone contract
  • Car financing

What information is included on a credit report?

Some of the information on your credit report can come from banks, building societies or credit card companies that you have borrowed from or owe money to. Other information may be collated from sources which are available to the public such as The Insolvency Register, the electoral register or may be supplied by utility companies.

Things which are included on a credit report;

  • Name, address, date of birth
  • Whether or not you are on the electoral role
  • How much you owe lenders
  • Any late payments on existing or past credit card or loan accounts
  • Any missed payments o existing or past accounts
  • Any County Court Judgements made against you
  • Whether your home has been repossessed or you have moved away owing money
  • Whether you have been declared bankrupt or entered into an Individual Voluntary Arrangement

Things which are not included;

  • Student loans
  • The balance of your current account
  • Your salary
  • Savings accounts
  • Criminal record
  • Medical history
  • Parking or driving fines
  • Council tax arrears

Credit score during an IVA

It is possible that you may find it difficult to obtain credit when you are in an IVA. If you wish to obtain more than £500 credit then you must get written permission from your insolvency practitioner, unless it is for public utilities such as gas, electric and water etc.

Details of your IVA are considered public information and it will be listed on the Individual Insolvency Register, therefore the concept of debt will be no secret from any potential creditors.

Credit score after successfully completing an IVA

Your IVA will stay on your credit file for six years from the day it started. So if your IVA was five years long then the record of it will only stay on for a further 12 months after the IVA ends.

Details of your IVA will remain on the Insolvency Register for the duration of your IVA and will be removed three months after your IVA has come to an end. You can find out more about life after an IVA from our blog.

A record of your IVA will remain on your credit file for six years from the date the IVA starts. The same is true even if the IVA fails.

Once you complete your IVA Aperture will issue your completition certificate, normally 3-6 months following your final IVA payment. We will also also contact your creditors to let them know the IVA has sucessfully been completed. It is then their responceabilty

How to improve your credit score

It may be a good idea to start by checking exactly what is on your credit file and make sure that all information is correct. You can check your credit score on websites like Experian, Equifax and Callcredit and compare these all against each other. Ensure there is no adverse information dated after the beginning of your IVA, as there should not be any new information after this date.

After the six-year mark has passed your IVA will no longer be listed on your credit report. Unfortunately, this does not mean its all plain sailing from here on out, this does not mean that you will be accepted for all credits that you apply for, you must now work on repairing your credit score and building it up.

How to repair your credit score

1) Build up your credit history - Having little or no credit can make it difficult for a company to assess you. A credit history is a record of how you use credit, such as when you’ve applied for it, whether you’ve paid it back and how much you currently have access to.

2) Prove where you live -Register on the electoral roll. This is a good idea as lenders are able to verify who you are and make you appear more stable.

3) Open a bank account- Managing it shows companies you’re financially stable. If you have an overdraft, make sure to stay well below the limit and try to pay it off as quickly as possible.

4) Get a credit builder credit card - Your bank may be willing to give you a credit card if you have no credit/bad credit. Paying it off on time will help you to build a positive credit history and improve your score. Be careful no to go overboard with this!

5) Get your name on utility bills – Utility bills such as your phone contract or your electric bill as these count as a form of credit. Paying these off and keeping up to date with monthly payments help to improve your credit score.

6) Pay your bills on time – We are only human and it is often easy to loose track of what payments are due when. In order to stay on track it is a good idea to set up a direct debit with your bank for certain bills as this means the money is withdrawn and transferred to the lender on the same day of every month. You can relax and your credit score is better for it. Another way to help pay your bills on time, is by using a Budgeting App... which will allow you to easily keep track of what you have spent, and what you need set aside for certain bills. You can read our blog on Top Budgeting Blogs of 2018.

The Rental Exchange

Experian have partnered up with Big Issue Invest to create The Rental Exchange to help tackle the challenges faced by rental tenants in the UK in comparison to home owners. This project aims to incorporate a tenant’s payment history in their credit file, therefore observing rental payment data in the same way that mortgage payment data is viewed. This will unlock a range of benefits for tenants by enhancing their credit score given that payments are timely and for housing providers and credit providers.

If this is something of interest to you, be sure to ask your landlord to report your rental payment data into the Rental Exchange.

In conclusion

Make sure you have a good overall view of your finances, keep on top of your payments and put yourself on the map by registering to your electoral role. Taking on board all of these tips will put you well on the road to credit score recovery!