‘Hard enquiry’ can reduce credit score but there is an alternative

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Simple habits such as paying bills on time can help improve a credit score but Britons should be careful about how they go about checking what their current score is. The better a person’s credit score is, the better chance they have of getting a good deal on their mortgage.

Jo Thornhill, personal finance expert at MoneySuperMarket, said people should keep a close eye on their credit report to check everything is correct.

She said: “There are a number of ways you can improve your credit score, for instance paying your bills on time, closing any unused credit card accounts, and making sure you are on the electoral roll.

“It is also beneficial to check the accuracy of your credit report. Sometimes there are errors so if you spot something that isn’t correct, you can contact the provider to get it amended.”

There are several UK credit reference agencies, that will give slightly different scores to consumers, using different scales.

Experian considers a ‘good’ score to be anything above 881, while Equifax defines ‘good’ as any figure of 531 or above, and TransUnion recommends a healthy score of 720 or above.

For any agency, the higher the score the better, so consumers should take steps to improve their score once they know what it currently is.

There is no minimum credit score when it comes to buying a property, as each mortgage lender will have their own requirements.

Ms Thornhill said: “The higher your credit score, the better your chances of passing the checks, and your access to the most competitive mortgage rates.

“Whether or not you’re successful in applying for a mortgage will depend on several factors, of which your credit score is just one.

“Lenders will also be interested in your job, your income and expenditure, how much you want to borrow, how much deposit you have and the affordability of the repayments.

“Make sure you check your credit report before you make a mortgage application to make sure there aren’t any errors and that all the information is up to date.

“If you spot any mistakes, make sure they are corrected before you make an application.”

Some factors which people commonly believe will affect their credit score in fact may not necessarily affect the figure.

Experts at www.onlinemoneyadvisor.co.uk have compiled a list of some common misconceptions about things which will affect a credit score.

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Checking your credit score or credit report

Making an enquiry about a credit score will not necessarily damage it, although this depends on what type of credit check the consumer makes.

If a person makes a soft enquiry, and checks their score themselves, their figure will not be affected.

Those who opt for a hard enquiry, where they get apply for additional credit and a lender looks at their history, may see their score reduced as a result.

Previous occupants at your home address

Lenders are only concerned with the individual’s financial details and anyone they are linked to financially.

The financial history of a previous occupant of their home will not affect their credit score in any way.

The current situation and history of the people they live with will also not have an impact on their score unless they share finances – this does not include splitting rent payments.

You must get a credit card to boost your score

Having a credit card can help build up a credit score but it is not essential for a person to have one.

Those who are worried they may not use a credit card responsibly should avoid getting one, as overspending on a credit card can damage a person’s credit score.

There are other types of loans that a person can look at taking out, to help build their credit score.

Queries from distant credit history

Most of the details in a credit report are held for around seven years, with the major exception of bankruptcies.

Lenders tend to focus their scoring on the most recent information so missing a credit card payment a decade ago will not have a negative effect.

A low credit score isn’t ideal but it won’t last forever and an individual can improve theirs over time, by implementing healthy financial habits.

Changes in income

Change to employment, including pay rises or pay cuts, will not impact on a credit score in any way.

An increased salary will probably help with credit card repayments but a person’s income does not factor directly into their credit score.

However, some lenders will consider a person’s income when evaluating a request for credit, by checking their debt-to-income ratio.

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