As we continue to battle the cost-of-living crisis, it’s easy to see the solutions damaging our credit file, impacting our future finances as well as hitting us in the pocket today.
As our wages will typically stagnate in comparison to the rapid climb on our outgoings, it means we’ll all have to tighten our belts that bit more as we have less disposable income at our fingertips.
The biggest impact this is likely to have on future finances is the impact on lower rate mortgages. Typically, lenders carry out two types of checks when ascertaining if your suitable for a mortgage; an affordability check and a credit check.
The affordability check is the one most impacted by the cost of living, and it's tough to improve, especially if you've already cut back.
Many who only just passed affordability checks before may now struggle to get a new affordable deal when their current deal ends - leaving some locked to their existing lender, or paying higher rates, or having no choice but to go on the expensive standard rate.
That's the reason the credit check is so important, as it may tip the balance. Of course, it'll be hit too if you've increased borrowing to cover cost-of-living increases. Yet as you may be able to polish your credit score, it's worth the effort.
10 Quick tips to help your Credit Score:
- Evidence your stability. Be that showing the same job, bank, or telephone number on applications.
- Get on the electoral roll. Not being on the electoral roll makes getting credit tough, as it can cause ID and tracing issues, so sign up to the electoral roll.
- If you're a foreign national unable to get on the roll, ask the three credit reference agencies to add a note to your file saying you can provide proof of residency (utility bills, a UK driving licence etc). The hope is lenders will ask for the proofs & accept them to complete ID/address checks.
- Never miss or be late on repayments. Use a direct debit to be sure, even if just for the minimum (then repay more on top).
- Don't withdraw cash on credit cards. It's expensive & evidence of poor money management.
- Be consistent, even on different applications, to avoid fraud scoring. Fraud scoring, where external agencies filter applications to check for inconsistencies, is credit scoring's secret cousin, so try to use the same details for each application or it looks dodgy and can cause problems.
- Ensure you time it right. Major problems, such as county court judgments (CCJs), defaults or bankruptcy, stay on your file for 6 years. Applications for products stay on for 1 year. So, if they'll soon lapse, try holding off applying until they do.
- Avoid lots of applications in quick succession. Many debt applications leave a footprint on your credit file. Too many, especially in a short space of time, hurt future applications (the system is anti-shopping around) as if you get rejected or a worse rate than advertised, you'll want to apply elsewhere. So space out and prioritise applications. For example, if you're due to apply for a mortgage, don't apply for minor things such as cashback credit cards for a month or two before.
- Avoid payday loans, they can mean bad news for mortgage applications. They're dangerous in their own right, but some mortgage underwriters simply won't lend to anyone who's had one.
- If you rent, your payment can now boost your credit score. There are three schemes available, all designed so that you paying your rent on time will benefit your credit history (pay late and it'll be negative).
- Buy now, pay later (BNPL) will SOON appear on credit reports, so timely repayment matters even more. The three credit reference agencies are all expected to be adding data about BNPL use (eg, Klarna, Laybuy) to credit files this year. So, on-time repayments should boost your credit history, late repayments may harm it.
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