Four Factors Affecting Your Credit Score, And How To Fix Them!

Your credit score affects many of the financial aspects of your life, including applications for payday loans, mortgages, and even for rented housing. Therefore it is important for you to have the best credit score you can. However, sometimes there are factors that can negatively affect your score. Luckily, some of these factors can be easily rectified to put you in the best financial position!

Not sure what’s actually in a credit file? Learn more here!

Credit score reports typically contain a lot of information, including your name, address, current employment, credit history and more. You can easily check your credit score and credit file for free on Experian, so if you’re thinking of applying for credit in the near future, you should check your credit file first to make sure there are no errors present.

credit-card-851502_1280

Any mistakes in your credit application or mistakes in your credit file can have a seriously negative effect on your credit score. Credit companies are much more likely to reject an application that has present mistakes.

There are several common mistakes made on credit files that should be fixed as soon as possible:

Mistyped or wrong National Insurance Number — Your National Insurance Number is linked to your identity from the moment you’re eligible to start working. Numbers are often quite similar, which means that a mistype could mean that your employment history comes up as someone else’s. You may be in a full-time job, but someone with a similar NI Number could be unemployed.

Repayment history — If you’ve had loans or credit cards in the past, you will have had to make consistence repayments. These repayments appear in your credit file so that when you apply for credit again, the financial lender can see that you are a responsible person who makes their repayments on time. In regard to this section, in particular, we’d like to offer some advice: If you’re applying for new credit, ensure that the new lender reports your repayment history to help you build your credit. 

Incorrect address — We briefly mentioned this above, but an incorrect address can lead to credit accounts being merged or a lender finding the wrong account for you. Some financial lenders base their rates on where you live, which means an incorrect address could make your credit rates quite high.

Incorrect name — Like having an incorrect address, an incorrect name can also cause confusion, and your credit file may pick up the history of a person who has a similar name.

To fix these errors, you need to dispute your credit file. You can do this by contacting the company that you receive your credit report from. Only that company will be able to fix the mistake in your credit file, but they may need to contact your previous lenders or see proof from you that the details are wrong. For instance, if your address is incorrect, you’ll need to provide proof of address.

By rectifying these mistakes, you should see your credit score improve. Having a good credit score can increase the likelihood of securing loans in the future. But, if you’re still working on your credit score there are lenders who can also help secure a loan for poor credit borrowers.

APR and Interest Rates Explained

What actually is interest and APR? These terms go hand in hand with anything financial, so it’s very important to understand them! Here’s our quick and simple guide to understanding APR and interest.

What is Interest?

Interest is a fee that a lender charges you for using his or her money. It is a per cent of the amount you borrowed from the lender. 

On the flip side, if you put your money into a savings account in a bank, the bank will pay you interest!

Compound Interest

Like regular interest, compound interest is a percentage of the initial amount plus the accumulated interest of the previous periods. That’s quite wordy, so here’s an example!

If you put £1000 in a savings account that earned 5% interest, after one year you’d get £50, taking the total to £1050. At the end of year two, you’d earn another 5% on your on your initial amount of £1000, but you’d also earn 5% interest on the £50 you got from year one. This gives you a grand total of £1102.50. That will continue for year three and so forth!

Essentially, this means your savings will grow more quickly because you are getting paid more interest over time.

Don’t forget, compound interest also affects borrowed money too, so the quicker you pay off a loan, the less you will have to repay!

Watch out for lenders that charge you a fee for repaying early. PiggyBank does not charge you any fee for making a part payment or full early repayment on any loans.

What is APR?

APR stands for annual percentage rate, it is a percentage that is a calculation of the cost of a loan for the entire year. This includes the interest added and any other fees in relation to your loan, such as closing fees and participation fees. This way you can easily compare different financial options.

Direct payday loan lenders often have relatively high APR rates. However, it does not mean that you end up paying £1000’s on top of the original amount borrowed. Most payday loan companies require the loan to be paid back within six weeks or less, so APR is difficult to apply as it is not stretched over a year. Therefore, the APR is a better tool to compare loans that are taken out over a year or more.

How to use APR to your advantage

The good thing about the APR is that while some terms vary according to the type of loan, there is a legal regulation of APR within any kind of sector.

The Financial Conduct Authority (FCA) requires short term direct lenders to reveal your APR so that you can be able to compare each loan better. This law requires also lenders to tell you any finance charges you have to pay according to the selected loan and the complete amount you will have to pay is you meet all the requirements.

How to Improve Your Credit Rating

The credit rating is a cumulative score reflecting a person’s financial health and ability to repay debts.  If you have a poor credit score, you may find it difficult to obtain loans. Though there are some lenders that offer bad credit loans, you may be better off making small changes to improve your credit rating.

The higher the individual’s credit score, the more likely lenders or creditors are to approve lending, such as for a short term loan.  Each person’s credit score is different based on their financial commitments, such as to mortgages, credit cards, and bank loans.

A person’s loan repayment history for transactions such as short term loans is an indicator of how a person might manage future loan repayments.  A credit report provided through a credit checking agency is a means of obtaining a personal credit score and understanding what constitutes the score amount.

By taking steps to increase their credit score, individuals can expand their borrowing options and are more likely to be approved for short term lending.  The main ways to increase credit scores include:

  • Registering your residential property for listing on the voting or electoral roll
  • Protecting personal identity to avoid becoming a victim of credit fraud
  • Repaying creditors on time and paying outstanding bills
  • Keeping accounts in use and closing unnecessary accounts that are not used
  • Having a credit history that shows an ability to repay money borrowed

Credit scores are low when the person has not registered to vote, defaulted on loans, gained county court judgments (CCJs), possesses numerous inactive accounts, and lacks credit history.

How To Check If You Have A Credit Footprint

When taking out large amounts of credit, such as a mortgage, it’s not just necessary to have a good credit file, it’s also important to show that you have a credit footprint. Having no credit on your credit file can be as bad as having poor credit. This is because lenders have no way of knowing how you handle money if there is no evidence of this on your credit file. So how do you make sure you have made marks on your credit file?

What is a Credit Footprint?

A credit footprint is a mark or record to show that a lender or a creditor has searched your credit file. For example, applying for a short term loan would leave a footprint. A soft credit search to assess limited information on your credit score will not leave a footprint, but a hard credit search to check a complete file leave a footprint.

If a company sees that you have recently recorded lots of credit footprints with loan lenders, it could imply that you are in financial difficulty. For many lenders, too many recent footprints left by short term loan lenders could negatively affect your application.

It’s easy to check the shape of your credit file for free at Experian.

credit cards

How To Create A Credit Footprint

Taking Out Credit

It may sound a little odd, but you need to take out credit to get other credit. This shows that you are capable of repaying the amount borrowed from another lender. Credit cards are a good example of this – making regular payments towards this and paying on time show you are a responsible borrower. If you aren’t using your credit card though, some companies will mark the card inactive, or even close down the account. This can affect your credit file as things like the credit limit you have compared to the credit you used are considered.

Sending Regular Payments

Setting up something as simple as a Direct Debit to pay your phone bill can help boost your credit file. This shows that you aren’t concerned that the funds won’t be there and that they can be collected automatically each month. Therefore it’s a good idea to set these Direct Debits up the day after payday, to make sure you have the funds!

Finance Options

This can be a little more risky, as you could have a large amount of credit attached to your credit file that doesn’t go down for months, when you need to make payments. But getting something like a car on finance can work like taking out credit, in that it shows you are able to pay back things on time.

footprint

All Sorted

Once you have repayments on your credit file, you can show lenders that you are able to handle your finances and pay back on time. So if you are looking for large amounts of credit, from mortgages to bank loans, just make sure that you have good credit on your credit file, rather than no credit at all. 

Debt Consolidation — Find Out Whether This Could Be The Right Option For You

Taking out a short term loan can often be an excellent way to cover an unexpected cost. However, taking out several loans alongside other borrowings can become difficult to repay. One solution for you if you are struggling to keep up with the monthly repayments is debt consolidation. Here, we explain what debt consolidation is and whether it could be a good solution for you.

Understanding Debt Consolidation

Debt consolidation and debt management are two different things, so don’t get them confused! Both are intended to help manage your monthly payments, but it’s all about deciding which option will be right for you.

Debt Consolidation merges all of your debts together into one single debt that covers them all. This can make repaying your debts much easier because it means you only have to make one single payment every month.

This consolidated loan could repay outstanding debts on credit cards, personal loans or store cards.

UK Debt

Make sure if you do choose to opt for a debt consolidation that you know if the loan is unsecured or not. An unsecured loan means that you lent the money based on whether they believe you are likely to repay, which is based on your credit history. A secured loan is secured against a valuable asset such as your house, which means your home could be repossessed if you fall behind on your payments.

It’s important to note that if you do choose to consolidate your debts you should not take out any other loans or credit and you should destroy your credit cards until you have got your finances back on track. 

Advantages to Debt Consolidation

All of your outstanding credit is in one place — It makes repayment simpler as you only have one interest rate and one single repayment.

It could improve your credit score — Once your debt is consolidated and you are able to manage your monthly payments, you may see your credit score improve. This is because lenders and banks can see that you’re able to keep up with payments and are therefore more trustworthy to borrow money.

Disadvantages To Debt Consolidation

You could end up paying back more —Consolidating your debts and repaying over a longer period of time could see you paying back than if you pay them back separately.

Higher interest rates — If you move your credit card repayments to a consolidation loan, you may end up with higher interest rates. A way to avoid these is to do a balance transfer on a 0% introductory rate.

Early repayment fees — Unlike PiggyBank, many lenders charge a fee to fully repay a loan before the end of its term. Check the terms and conditions to make sure you know whether these fees apply.

Is Debt Consolidation Right For You?

Take our quiz!

What Exactly Is A Credit File, And How Does it Affect You?

You may have heard before that your credit file is important and that “you should really check your credit score more often”, but why? What makes your credit score so important, and how does it affect you? We’ll lay it all out for you.

piggy credit

What is a credit File?

A credit file is made up of all of the credit that you’ve taken out in the last six years. This includes information supplied by banks, building societies and even payday loan direct lenders such as ourselves. It demonstrates whether you’ve paid back your debts on time so that other creditors can decide how risky it is to lend you money.

Everyone has their own individual file, and you can check yours for free at Experian.

What Information Does It Have On it?

A lot of information is held on your credit file: such as your name, date of birth, and current and previous addresses. It also holds information from bank accounts in your name and any loans you’ve agreed to.

This includes:

  • Any past missed payments: this could be an unpaid balance on your credit card, missed rent, or failure to pay a monthly bill
  • Defaulted accounts
  • Any current debts – including credit card balances, payday loans and phone bills.
  • Court Judgements against you
  • If you’ve been made bankrupt or insolvent
  • If you’re on the electoral roll

https://www.piggy-bank.co.uk/blog/credit-score/factors/

How Does It Affect You?

By using the above information you are given a credit score. The higher your credit score, the better. Think of a credit score like a test: the more marks you get, the better your chances are of getting what you want. When you have a good credit score, it means judging by your credit history, you have a high probability that you will repay the loan within the stipulated time.

Therefore, if you intend to get a loan at some point, especially from institutions like banks, you need to work towards having a good credit score. A good credit score is, therefore, something that will make lenders trust you that much more.

This can even affect applying for a mortgage and rented property too.

Essential to note is that in most cases, different lenders calculate credit scores on their own. In other words, they make their own calculations. As a result, you might end up having different credit scores for different lenders. Though there are some lenders who offer “no credit check loans“,  it may be better, in the long run, to work on improving your credit score as “no credit check loans” are likely to charge higher interest rates.

All that matters is that all your credit score remains as good as it can possibly be.

Discover these tips and tricks to improve your credit score!

Credit Card Protection: Explained

There are so many benefits to using a credit card, one of which is credit card protection. However many of us don’t fully understand or use these safeguards that free.

Under Section 75 of the Consumer Credit Act, you are protected by your credit card provider for purchases. But what does this mean, and are you safer paying with a credit card than with cash or a debit card?

Piggy Credit Card

Here’s credit card protection explained:

Section 75 of the Consumer Credit Act

In a nutshell, this law means that if you purchase anything such as a laptop or a holiday between £100 – £30,000, your credit card company is as liable as the company from where you’ve bought your product if it is faulty.

These are the situations where you’re covered:

    • If the product is faulty or not up to standard
    • If the company has misrepresented what it is supplying
    • If you do not receive your purchase after ordering it

Fortunately, you do qualify for reimbursement even if you make a part payment for a purchase with your credit card. So if you paid a £30 on your deposit credit card and another £300 on a debit card you would be able to claim for the full £330.

Chargeback

Chargeback also allows you to try to recover purchases under the £100 limit and is available on debit cards and credit cards like Visa, Amex, Maestro, and Mastercard. However this is what’s known as a ‘Scheme Rule’, so it is not legally binding unlike Section 75. For this reason, you are better to claim on Section 75 if you have spent over £100.

When do you not qualify for Section 75?

There are certain requirements to qualify for this act, for example, the individual item you have bought must be over £100, rather than the total bill. For example, if you purchased a return plane for £120 you would be eligible, but if you paid £60 each for one-way tickets then you would not qualify.

Use this page to find out how to claim your credit company.

As always, making payments with credit cards can be very beneficial for your finances such as protecting your money and managing your outgoings to spread the cost of expensive purchases. But it is important to use credit cards responsibly and create a sustainable budget that you can stick to so that you can avoid potential financial difficulties in the future.

If credit cards aren’t for you, there are many other borrowing options available. 

  • Overdraft. An overdraft can be used for short term borrowing or emergencies. It allows you to borrow money through your current account for a charge. 
  • Payday LoanPayday loans are another form of short-term borrowing. They’re quick and convenient ways to get access to cash for emergencies, and are repaid in full on your next payday. Most payday loan lenders can help secure loans for poor credit borrowers
  • Instalment Loans. If you’re unable to repay your loan fulling on your payday, instalment loans are flexible and manageable ways to borrow. Rather than paying your loan in one go, an instalment loan allows you to spread the repayments over weeks or months. 
  • Bank Loan. If you’re looking to borrow a large amount, a bank loan may be better suited. Unlike payday loans, personal loans from banks and building societies tend to be for over £1000 and spread over months rather than years. 

If you’re looking to get an instant loan online, PiggyBank can help! We’re a direct loan lender, offering both payday and instalment loans.

8 Common Credit Card Mistakes to Avoid

They say that half the battle is knowing what NOT to do. If you’re looking to start building up your credit or repair a bad one, responsible use of a credit card with regular purchases and on-time repayments can help improve your credit score. A better credit score will make it easier for you to get accepted for financial products such as mortgages and loans.

Here’s 8 common credit card mistakes to avoid:

    1. Making late repayments – if you miss a repayment date you’re opening yourself up to late fees and potentially a damaged credit score. You can avoid this by setting up automatic payments or payment reminders through your provider.
    1. Only making the minimum payment each month – paying the minimum payment means the remainder of your balance is unpaid, collecting interest. You should always plan out how much you’ll be spending on your credit card and paying the full balance off each month.
    1. Ignoring statements – if you don’t check your credit card statements each month you could be missing important information such as changes to your credit card terms.
    1. Becoming too dependant – your credit card should ideally only be used for small payments or emergencies. If you find you’re becoming too dependant on your credit card, your balance could reach unmanageable levels and lead you to bigger troubles in the future.
    1. Exceeding your limit – exceeding your credit card limit puts you at risk for fees, penalties and could affect your credit score. You should always keep an eye on your balance and set up automatic reminders so it doesn’t come as a shock.
    1. Not knowing the terms – all credit card companies handle circumstances such as late payments differently. Before applying for a credit card or switching to another provider you should fully read the terms and conditions so that nothing comes as a surprise.
    1. Withdrawing cash – withdrawing cash from your credit card can come with some very steep fees, so it’s always best to avoid this entirely.
  1. Applying for too many cards at once – if you apply for a number of credit cards at once, this is visible to lenders who may get suspicious and decline you. You should only apply for credit cards one at a time.

You should always remember that using your credit card can be a bit of a double-edged sword. Used correctly, they can help improve your credit score, but used incorrectly they can have the opposite effect.

For more information on long term lending contact today.

Could These Surprise Factors Be Affecting Your Credit Rating?

Building and maintaining your credit score is vitally important to maintaining your creditworthiness, as potential lenders will use this score when assessing the risk of lending to you.

Your credit score can fluctuate depending on your behaviour, such as falling behind or missing payments entirely. However, there’s a surprising number of factors you may not know about that could be tanking your credit score!

letterbox

Not alerting utility providers or creditors that you’ve moved

If you receive any paper-based bills or communications from utility providers or creditors, it’s vital that you update your records with them and provide your new address. Otherwise, you could have bills or debt left outstanding without your knowledge, which will negatively affect your credit score.

If you want to be certain you’re not missing any important post when you move you can set up post redirection from Royal Mail, which will automatically direct post going to your old address to your new address. It costs £31.99 for 3 months, £43.99 for 6 months and £62.99 for 12 months.

iphone-410324_1280

Upgrading your phone

Many of us like to upgrade our phones every few years, but you should always check that your old contract has been fully cancelled off. There have been cases where providers have accidentally left old customer contracts open without their knowledge. As the contracts were unpaid, customer credit scores fell as a result.

When changing contracts you should always double check the old contract has been closed and keep an eye on your credit report at regular intervals to make sure nothing has slipped through the cracks. There’s a number of free providers you can use such as ClearScore and Experian.

credit-card-851502_1280

Not using your credit card

A credit card can be useful for building your credit score, as it shows regular credit utilisation.

It’s always beneficial to keep your credit utilisation rate low and not too high, as this could show you’re having trouble managing your finances.

However, if you don’t use your credit card at all it could be closed due to inactivity which has a knock-on effect on your credit score. Having your credit card closed can not only hurt your credit score but increase your credit utilisation to high levels as your total credit limit has now been reduced.

If you’ve managed to avoid these factors, great! But always remember – you should always regularly check your credit score to avoid any future surprises. Having a good credit score will help you secure loans in the future. However, some lender can also help secure loan for poor credit borrowers. 

If you want to build up your credit score, check out these 5 top tips!

Understanding Credit Reports and Who Looks at Them

Have you ever wondered how a lender decides whether to give you credit? A credit report is an important tool for determining your credit history and assessing the risk of lending to you.

What your credit report shows:

    • Your current credit accounts – this includes your bank and credit card accounts and other current arrangements such as outstanding loan agreements or utility company debts. If you’ve previously made late or missed payments these will be recorded and stay on your credit report for at least 6 years.
    • Relevant details of people who are financially connected to you if you’ve taken out joint credit.
    • Any public record information such as County Court Judgements (CCJ’s), bankruptcies, house repossessions and Individual Voluntary Arrangements (IVA’s). These will also stay on your credit report for at least 6 years.
    • Whether you’re on the electoral register.
    • Your full name and date of birth.
    • Your current and any previously recorded addresses.
    • If you’ve previously committed fraud.

What your credit report doesn’t show:

    • Your salary.
    • Your religion.
    • Your criminal record.

Who looks at my credit report?

When you apply for any type of credit, this will usually involve giving the provider permission to check your credit report to assess your credit history. This can include banks, credit card companies, direct loan lenders but also mobile phone providers, employers and landlords. 

These companies can choose not to lend to you if you haven’t previously managed your credit well. In some cases, the credit provider (such as credit card companies) may offer your alternative options, such as smaller amounts of credit or a higher rate of interest. In these cases, many people have been tempted by “no credit check loans“.

In cases where you’ve been unable to keep to the terms of a credit arrangement and set up a payment plan, this will show on your credit report. However, a payment plan can show that you have taken a positive action towards your account which will clear your outstanding balance quicker and in turn help your overall creditworthiness.

How do I check my credit report?

There are a number of free providers such as ClearScore or Experian.

What if there’s an error on my credit report?

If you spot any errors on your credit report, you should contact the lender directly and explain the situation. Always remember to provide as much evidence as possible to ensure a quick resolution.

How do I improve my credit score?

If your credit score isn’t in the best shape, there are a number of ways you can improve it.

Your first step should be to ensure that there are no errors on your credit report (above).

You can then:

    • Pay your bills on time to show you manage your finances effectively.
    • Avoid CCJ’s – if you’re having debt problems you can seek free advice.
    • Reduce your existing debts by paying off credit cards and overdrafts.

For more information, take a look at our 5 Ways to Build Your Credit Score guide.