FINANCIAL WELLBEING HUB
Your guide to financial
Credit Scoring
FINANCIAL WELLBEING
How your credit score affects your borrowing
We’re all about helping people succeed at Pepper Money. So when it comes to taking your next steps, like securing a mortgage, we like to make sure you’re aware of the potential financial barriers.
One of these barriers is a less-than perfect credit score. So this is our high-level lowdown on the topic – which we’re sharing to help you better understand, avoid the traps and build up a healthier credit profile.
A credit score – or credit file — is what lenders like banks, credit card companies and mortgage providers use to assess the risk of lending money to people.
They’re created by collecting information about you from public records, lenders and other service providers. It’s important to understand what influences your score, how you can affect it and how to avoid any potential pitfalls.
The first thing to know is that no-one has a single credit score. There are 3 main credit reference agencies in the UK – TransUnion, Experian and Equifax. Because each agency works independently, the details they hold and score they create can vary. Many lenders also calculate their own credit scores in house. The bottom line is that you’ll have multiple credit scores.
It really does pay to know your credit score. Having a higher one means lenders see you as lower risk. And this means you can choose from a wider range of loans, credit cards and mortgages. You’ll often be able to enjoy better interest rates and more generous credit limits, too.
On the flip side, if your credit score isn’t as strong as you’d like, knowing what it is at least means you can start to improve it.
It’s your legal right to check your credit report. And most credit reference agencies offer 30-day trials, where you can do this for free. To help set you on your way, you can sign up to Equifax here. Just make sure you read the terms and conditions, and be aware that you’ll be charged a monthly fee if you don’t cancel in the first 30 days.
A credit score is what banks, credit card companies and mortgage providers use to assess the risk of lending money to people.
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How does your credit score affect getting a mortgage?
When you apply for a mortgage, providers look at your credit score as part of working out your lending risk. But there isn’t one specific score that guarantees you’ll be accepted. Mortgage companies take a wider look than that – also considering your earnings and other regular outgoings like bills and Council Tax.
How can you improve your credit score?
Whether you’re looking to sort out a less-than-ideal score, or build up your credit history from scratch, these simple tips will help you get where you want to be:
- Only borrow what you can afford
- Set up Direct Debits
- Stay within your credit limit and keep your balance low
- Register to vote at your current address (companies use the electoral register to confirm your identity)
- Check your credit report regularly, and report anything suspicious or inaccurate
- Always make your repayments (if you can’t, contact the company to make an arrangement that works for both of you)
- Frequently setting up new accounts (although you’ll be fine if you don’t overdo it)
- Being close to, or going over, your credit limit
- Too much switching between lenders (credit scoring looks at the average age of your accounts)
- Applying for credit too often (multiple applications can negatively affect your score)
- Missing payments or late payments
- Moving house too often, or not being on the electoral roll
- Having a joint account with someone with a bad credit record
- Frequently withdrawing cash on your credit card
- Having little or no credit history
What affect CCJ’s can have on your Credit Score?
County court judgements and your credit score
A CCJ is a court order that will reduce your credit score. You can get one when you fail to repay a debt and the lender takes legal action against you. Having a CCJ will make it difficult to borrow money or even open a bank account in the future.
How much will a CCJ affect your credit score?
There isn’t a set number of points that a CCJ will take off your score, though you can expect to lose around 250. This is on top of the damage to your credit score from failing to repay the debt that led to the judgement in the first place.
How long does a CCJ stay on your credit file?
Typically, for up to six years. After this, it will be removed and your credit score will usually improve – whether or not you’ve repaid your debt. As long as you’ve looked after your credit history in the meantime, you should be able to get a wider range of loans and products at this point.
How do you avoid a CCJ?
The main thing to remember is to pay your debts on time, or agree a payment plan with lenders if you can’t. If you do get issued with one, then you can have it removed from your credit report if you pay the full amount within one month. You should never ignore a CCJ, though. This could lead to further, more serious action including:
- An attachment of earnings. This means the money you owe would come directly from your wages
- High Court Enforcement Officers or bailiffs visiting your home. They can ask for goods or money to be used to pay off the debt
Can you get a mortgage with a CCJ?
Having a CCJ has a big impact on your credit score. But it doesn’t mean you can’t own your own home. And at Pepper we believe that for borrowers committed to improving their credit history, it shouldn’t.
There are lots of reasons why people get issued with CCJs. Which is why we look at the human story behind the situation, and make our decisions based on this as well as the numbers. It’s a fairer approach to lending, with the aim of helping more people move onwards and upwards.
You can take a look at our products for those with less-than-perfect credit histories here.
A better credit score means a better financial future
Now you know what your credit score means – and how to make it better – you can start working towards better financial health. It may take time for your credit report to be updated so you can see your higher credit score. But it will happen if you keep doing the right things and stay patient.
The sooner you take steps to improve your score, the sooner you’ll see a change. And the sooner you’ll be able to move on to more favourable financial products in the future.
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HOW TO APPLY
We don’t offer our products direct to customers. If you’re interested in taking out a Homeowner Loan, speak to one of our trusted broker partners. They can talk you through your options and give you their recommendation – whether that’s one of our loans, or somebody else’s. Whatever is best for you.
ARTICLES & BLOGS
If you’d like to dig deeper, read our articles and blogs for the best Homeowner Loan content and insight.
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