How To Rebuild Your Credit Score

Recent figures show that the average millennial’s credit score has risen by four points since 2016 – which is more than any previous generation within the same time frame. Credit debt seems to be something of an epidemic in the UK – this year alone, the population owes a total of £207 billion in consumer debt, with the average household owing around £7,616 in credit debt.

Building a good credit score can be something of a grey area for some, and the prospect of a credit default daunting (more on this later). So we spoke to David Baddeley, credit expert at debt solution specialist Scottish Trust Deed, to discover how credit works and the ways we can build up a good credit score if you’ve

First things first – what is a credit score?

A credit score is a three-digit number that shows you how likely you are to be accepted for credit. Credit is money you borrow with the agreement that you’ll pay it back at a later date. This can come in many different forms, including credit cards, personal loans, store cards and mortgages. Essentially, your credit score is a metric that determines how lenders perceive you, David says. Your score is based on your credit report, which is a record of how you’ve handled credit in the past.

What can affect your credit score?

Unfortunately, quite a few things can affect your score. The biggest imposing factors on your credit score will be any CCJs (a judgment that a county court issues when someone has failed to pay money they owe) and bankruptcy (a legal status of a person or other entity who cannot repay debts to creditors). But missing payments and paying late on debts will also leave a negative mark on your score – for example, if you miss several payments, your lender might place your account in ‘default’, which carries a heavy penalty on your credit score.

David tells us banks and lenders favour those who are stable and secure, which includes your address. “Living at one address for a substantial amount of time goes in your favour over frequently moving addresses,” he advised. “Likewise, holding a current account for several years portrays stability and is beneficial to your credit score.”

Why is it so important to have a good credit score?

David says for lenders, your credit score is a great indication of how trustworthy you are in paying back credit – and it can affect everything from your ability to apply for an overdraft to getting a mortgage, so it’s key that you keep a good credit score for your future plans.

How long does it take to rebuild a bad credit score?

“Collections and late payments affect your credit score for a total of seven years,” explains David, which means any bad choices you make as a teen can still be hanging over your head in your mid-twenties. But luckily, it doesn’t have to mean that you have a negative credit score for the full seven years – there are things you can do to improve your credit score.
 
So if you have bad credit right now, there is light at the end of the tunnel. To improve your credit score, here are David’s top five tips to getting started:

Don’t Forget The Past

The foundations of a credit score are built on predicting a consumer’s future behaviour. Lenders actively analyse all the data they have on you and align it with their criteria. If your reputation with credit has been poor in the past, it is worth shopping for a card that uses ‘soft searches’ only within the application process. Soft searches mean that you can see reasons on your file, but other lenders cannot. ‘Hard searches’ ensure all lenders can see the reasons you may have been unsuccessful in your previous applications.

In turn, having no credit score makes it impossible to predict your future behaviour. In this case, obtaining a credit card that holds the objective of building a credit score is wise. Spend an amount each month that you can pay off in full on each bill date. The interest rates might be higher on these types of cards, but if you are paying in full then this is irrelevant.

Get On The Electoral Roll

Ensuring that you are on the Electoral Roll (the official list of the people in a district who are entitled to vote in an election) means that lenders can trace an address history with ease. No record of addresses can easily lead to rejection, no matter how positive your score is. Also, if you’ve moved to a new house, make sure old utility bills have been cleared. A simple oversight or forgotten bill can lead to defaults on your file which can hold future consequences. It is also vital that you check old loans and credit cards have been cleared.