Although it's not impossible to buy a house with a lacklustre credit score, most people find that an improved credit score generally correlates with a better mortgage deal. And, with sold property prices being as high as they are, every little helps when it comes to funding a house purchase.
Accessing good credit deals is only one reason why it's important to keep tabs on your credit score. The other important reason for doing so is to reduce the risk of being targeted by fraudsters.
Here are four checks you should make every month to ensure your credit rating is the picture of health.
1. Does your credit record list all your accounts?
When you check your credit records, you should see all your bank accounts with a credit (i.e. overdraft) facility, credit cards (including store cards), loan agreements, mortgages, and potentially also mobile phone accounts and some household utility accounts. A well-managed account that's missing is depriving you of a possible uplift to your credit score. Meanwhile, a poorly-managed account that either isn't yours or that you closed more than six years ago could be damaging your credit score.
2. Are your bill payments correct?
Whether or not a bill appears on your credit report can be confusing. As a rule of thumb, advance payments are not regarded as credit.
- An active mortgage that you are still repaying or one that you have paid off within the past six years will appear.
- Active credit cards or those that you have closed within the past six years will appear.
- Store cards may be listed as credit cards but, even if they are not, they are recorded in the same way. As a result, you may see what you owe on them recorded as part of your overall level of credit card debt.
- Loans regulated by the FCA will appear. However, bear in mind that even if you have made payments regularly, not all loans are considered equal in the eyes of lenders. For example, payday loans may be viewed as a sign of financial inefficiency or difficulties.
- Mobile phone contracts may appear twice: once for line rental and once for loan payments (i.e. charges for calls you've made).
- Car finance agreements usually appear on your credit report.
- Utility bills (i.e. gas, water and electricity) sometimes appear on credit reports. However, this is most likely to happen if you miss a payment. In other words, making regular payments towards, for example, your gas account is unlikely to affect your credit rating either positively or negatively. Note also that a utility bill that appears on your report issued by one of the three main credit reference agencies is unlikely to appear on those issued by the other two. This quirk occurs because utility companies rarely report credit searches to all three of those agencies.
- Council tax does not appear because it is a tax and not a type of credit.
- TV licence payments do not appear.
- Insurance policy payments will not necessarily appear on your credit record. This may be the case even where the insurance company concerned carried out a credit check on you prior to issuing you with the insurance policy. The only way to know for sure whether or not payments are recorded on your credit record is to check for yourself.
- Rental payments are sometimes recorded.
Where a bill appears on your credit report, the entry will detail whether you paid in full or in part, and whether you made that payment on time. Check if the recorded information is accurate, as incorrect entries can affect your credit rating. As a first step, you should query any inaccuracies or omissions with the relevant lender to ensure that their records match what you are expecting to see. If they do, you should then report the problem to the credit reference agency concerned. If necessary, you'll need to be prepared to use their dispute service.
3. Are your financial associates listed correctly?
Financial associates are those people with whom you have linked financial affairs. This may be because you have a joint bank account or because you have taken out a mortgage or other type of credit agreement together. It is essential to make sure your financial associates are up-to-date because lenders may conduct soft searches of everyone with whom your credit report records you as being financially linked. Even if your own credit record is excellent, you may still be rejected, or be offered credit on less advantageous terms, purely because a financial associate has a less than sparkling credit record of their own. Unfortunately, this can be the case even if your credit application has nothing to do with this other person. Consequently, it is prudent to ensure that only those individuals with whom you have ongoing financial links (e.g. a subsisting mortgage) are listed as a financial associate. If your credit report records you as being linked to someone with whom you no longer have a financial relationship, you need to have this amended. To do so, you'll need to contact the relevant credit reference agency. As with bill payments, this may involve using their dispute service.
4. Do you recognise the searches listed on your credit account?
Searches can be hard or soft. Hard searches are carried out by lenders assessing whether or not to advance you a form of credit. They are visible to all other visitors to your credit file. Soft searches, on the other hand, are visible only to you. They appear either when you check your own credit record (so are a good thing!) or when a quotation search is conducted to assess your eligibility for a particular credit product. If you see a search that you don't recognise, it's most likely to be an error that you can have corrected by raising a dispute with the credit reference agency. In addition, if you believe an entry is fraudulent, you should contact Action Fraud.
It's sensible to get into the habit of checking your credit record every month, particularly if you're hoping to buy a property in the near future. There are no guarantees when it comes to the property market but ensuring that all is as it should be with your credit report is one less thing to worry about - even if it then frees you up to fret about whether or not sold property prices are going to rise faster than you can save for a deposit.
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