Making sense of your credit score If you’re looking to buy your first property and begin your journey up the property ladder then it’s important that you understand your credit score and how it works.

  A poor credit score could affect your ability to borrow money from banks and in all likelihood harm your chances of being able to buy your dream home unless you take steps to improve it.

 What is a credit score?A credit report records all your historical lending data.

It provides information to third parties such as mortgage lenders, banks, loan providers and potential landlords about your past lending to show them how reliable you are with money.

  It will detail any current and previous loans, addresses, financial connections, debt arrangements, County Court Judgements (CCJs), late payments, bankruptcies and other important information to help lenders get an idea of whether it is safe to lend to you.

How do I check my credit score?Thanks to the Consumer Credit Act (1974) you are legally entitled to check your credit report for a small charge of £2 through the main agencies – Callcredit, Equifax and Experian.

However, there are some ways that you can check it without having to pay.

For instance Callcredit offer a free service called Noddle, Experian provides free access through Money Saving Expert Credit Club and Equifax through Clearscore.

  It’s recommended that you check your score with all three agencies as in some cases they don’t always receive all the same data.

What do I do to improve my credit score?There are lots of different factors which affect your credit score but how can you improve it? According to Experian, one of the best ways to improve your rating is to reduce your account balances across the board.

  This means paying off some money towards your credit cards, store cards and overdrafts.

  They highlight the importance of staying within your credit limits too.

For example, if you have an overdraft and constantly go past the approved amount into your ‘unplanned’ overdraft each month then it doesn’t do you any favours.

Another potential upset to your score is when you apply for too much credit all at once.

Each time you make a credit application, say for a credit card, it will leave a trace on your report.

If a lender sees traces of lots of applications they may well be concerned about your financial situation.

They recommend limiting applications to three every six months.

They also recommend registering to vote as this puts you on the electoral roll and confirms your identity to potential lenders.

Finally, if you have a bankruptcy or substantial default on your credit score then unfortunately there isn’t much that you can do to remove it – you will have to wait out the six years until it lapses.

  However, lenders are most interested in your current circumstances so if you can keep a good credit record for a six month period you hold a better chance of being approved for further credit.

What if my credit score is inaccurate? There are often cases where people’s credit reports have been negatively impacted by fraudulent applications.

So keep a regular check of your credit report to make sure no one has tried to get credit in your name, or there are any other mistakes on your report.

If you do spot something suspicious on your report then you need to contact whoever supplied the information, or the credit reference agency you are using and ask them for a correction.

  The agency has 28 days to make a decision on whether to remove the disputed claim.

If after consideration they won’t remove it, then you are legally allowed to ask for a ‘notice of correction’ which allows you to have 200 words next to a specific piece of information that explains why you missed a payment.

For example if there was mitigating circumstances such as losing your job or ill health.

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