Your credit score matters – here’s why
A credit score is used to assess whether or not you will be able to repay a loan, mortgage or credit card debt. If you’re not looking to buy a property, don’t have a loan and you’re on top of your credit or store card payments, it would be easy to think your credit score doesn’t matter. But if you want to rent a property, the landlord or agent will check your credit history as part of the referencing process.
The landlord is checking to see if – based on your previous approach to borrowing and repayment – he or she is likely to be paid the rent due on time and in full. A credit check is not an exact science because your past activities are only a guide to how you’ll behave in the future. Your circumstances may have changed substantially, and may well change again, but landlords are looking to reduce their risk and your credit history provides useful information.
One of the strange quirks of this system can apply if you have no credit history. If you’ve never borrowed, there’s no information on which the landlord can base decisions. You could be perceived as a bigger risk than someone who has a string of card debts and a loan. Evidence that you have a responsible attitude to borrowing – making the necessary repayments when you should – can, strangely, be better than having no borrowing at all.
This situation often catches out first-time tenants, but some simple steps can help you start to build some history. Firstly, make sure you’re on the electoral roll. You don’t need to vote, but it’s one of the first things the credit referencing agencies check for. Secondly, when you fill in forms, get the detail right and consistent. You don’t want to leave gaps or room for confusion. If you’re splitting up with a partner and you’ve always had joint accounts, get things in your own name as soon as possible.
You’ll have seen the TV ads suggesting you work on improving your credit score. Often these are from companies wanting to sell you a service, but last year’s changes to data protection regulations mean that you can ask for your files to be checked without charge. The UK has 3 major credit referencing agencies – Experian, Equifax and Callcredit – all of which will give you a free credit score. If you decide to check all three, don’t be surprised if you get a different answer. Different agencies use different factors and have different attitudes to risk. That’s why some lenders will okay a loan that another has refused.
If you do need to improve your credit score, there are lots of ways to do it. Perhaps the simplest is to set up direct debits to repay any credit or store card borrowing so that you’re never late with a payment. Pay off any debts you can and cancel credit cards you don’t need. You’ll find lots more ideas online including more info about activities that can adversely impact your score.
If you do find yourself with a tenancy application rejected, make sure you check your credit score before you make another application. Repeated applications without an improved credit score can sit on your file and prove damaging. But if you’ve set your heart on the property, know you can afford the rent, be prepared to negotiate. Can you pay upfront? Can you find a guarantor? Just as there are often ways to improve a credit score, there are often ways to ensure your credit score doesn’t hold you back.