A credit score is basically an assessment of how risky it is to lend to someone.  Like all assessments, it’s only as good as the data which goes into it.  Credit agency Experian has acknowledged this with the launch of their new (and free) “Boost” service.

What makes Boost special?

Boost is a voluntary addition to a person’s credit record.  It includes a person’s savings and investments, council tax payments and, crucially, even some regular payments.  These include popular subscription services like Netflix and Spotify.

Boost could be boosted even further by signing up to the Rental Exchange Initiative.  This allows your rental payments to be recorded and hence to contribute towards your credit score.  This does, however, require your landlord’s cooperation.  Many social housing providers, local authorities and letting agents are set up to report data but private landlords may not be.

What difference will Boost make?

As is often the case in both finance and life, it depends.  Most obviously, it depends on which credit agency a lender (or company) uses.  Boost is only used by Experian.  Experian is a major credit agency but there is also Equifax and TransUnion.  There is also Crediva although that is very niche.

Secondly, it will depend on an individual’s personal situation.  For example, older people who have a long-established track record of paying standard financial products such as mortgages and credit cards may not get as much benefit out of it as younger adults who haven’t.

The rules around using credit stay the same

Boost is most likely to benefit people who make little to no use of credit products.  If you are using credit, however, then you need to use it responsibly.  Here are the basic rules.

Stay well within your credit limit

Continually hovering around your credit limit is a red flag for creditors.  It basically looks as though you’re living your financial life rather close to the edge.  Try to keep at least 10% below your credit limit.  More is better.  In fact, ideally, you’d pay off your balance in full every month to avoid paying interest.

Always make your minimum payment

Currently, formal payment holidays taken as a result of COVID19 are not having a negative impact on your credit score.  This is, however, always subject to review.  Some people believe that they should.  In fairness, at present, there are arguments to be made on both sides.  In general, however, this one is very clear.

If you fail to make the minimum payment on any credit product, then you can expect your credit score to take a hit.  Make a habit of it and you’ll seriously damage your score.

Close off unused accounts

There are two good reasons for closing off unused accounts.  First of all, it sends out a message to creditors that you’re not going to use the line of credit.  Secondly, it takes your data out of active use and allows your details to be archived until they can be deleted.  This reduces your exposure to ID theft.

If you’re carrying accounts with small balances, then it’s advisable to ask yourself if you really need them.  If you don’t, prioritize paying them off and then closing them properly.

Why does your credit score matter?

Your credit score matters a lot even if you’ve no intention of taking out credit anytime in the near future.  Apart from anything else, you might change your mind (or your circumstances might change).  Alternatively, you might need (or want) a new job, a new home (to rent or to own) or a new contract.  If you do, there’s a good chance your credit score will be checked.

 

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