Even if you’ve no plans to take out credit any time soon (or any time ever), it’s still worth looking after your credit score. With that in mind, here is what you need to know about how to make the most of your credit score.
Why your credit score matters
The obvious reason why your credit score matters is that it influences your ability to get credit. This includes your ability to get any contract where you pay in arrears. Your credit score can also be used for other purposes, such as tenant checks and employee checks.
How your lifestyle influences your credit score
Building a good credit score essentially consists of demonstrating financial responsibility. The more financial responsibility you show and the longer you show it, the more your credit rating increases. There is, however, a twist to this. Some payments are more likely to benefit your credit score than others.
As a rule of thumb, debt repayments are almost always reported to the credit agencies. Buy-now-pay-later repayments are due to start being reported to the credit agencies. Currently, however, there’s a distinct lack of clarity about just what this is going to mean in practice. The BNPL sector is due to be regulated in the near future so this may be resolved then.
Similarly, rent payments can, in principle, be reported to the credit agencies. In practice, this is only likely if you’re paying your rent to a larger landlord (e.g. a housing association) or a larger lettings agent. Smaller lettings agents and private landlords are much less likely to do so. You do have the option to self-report but only if your bank supports Open Banking.
Credit agencies are increasingly trying to take other forms of regular payment into consideration. Hopefully, the initiative will gain momentum. At the moment, however, it’s probably fair to say that, even now, debt repayments are often key to your credit score. It can, therefore, sometimes be worth opening a credit card and paying it back in full every month just to boost your credit score.
Basic housekeeping matters too
You need all the details of your financial life to tie up. If they don’t, the inconsistency is likely to be flagged and can count against you. Making this happen is actually very straightforward. You essentially just need to ensure that all the companies with which you do business always have your correct and up-to-date contact details.
This may sound like stating the obvious but in the modern world, it’s very easy for you to let your contact details get out of date. These days, email tends to be the default method of communication. Out-of-date addresses can, therefore, sometimes only be discovered when letters go missing.
Businesses may try to avoid this by prompting you to check your details. They cannot, however, force you to do so properly. With that said, they shouldn’t have it. It’s very much in your interests to keep your financial matters in good order. Make the time to check that all your providers have your correct details and then commit to updating them as necessary.
Use this exercise as an opportunity to check that your details, especially your address, are shown in the exact same format across all providers. For example, if you live at 4F AN Other Road, make sure that this is exactly how it’s shown everywhere. It may not matter to the Royal Mail but it can matter to databases. Also, make sure that you’re on the electoral roll at that address.
Mistakes can hurt a lot
Both human error and computer error are facts of life. Both have the potential to impact your credit score. It’s therefore advisable to check for them regularly. This will give you the best chance of getting mistakes fixed before they cause a real-world problem for you.
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