Most of you would have heard of Credit rating or Credit report but I’m not sure you know what exactly it is and why should you bother thinking about it? If you are currently living in the UK or planning to move here and permanently settle, you should take action as soon as possible.
What is Credit rating and Credit report?
Credit rating is expressed by a credit score which is a number between 0 and 999. Whereas credit report is a file which UK credit agencies hold on you that includes details like your address history, contracts, credit cards, loans, mortgages and information on all late and on-time payments you have ever made. Credit report is linked to your credit score, therefore, it is important to keep it up to date and in a “healthy state”. As soon as you enter the UK and open your first bank account, enrol to University, rent your first property or register with your local council, you are assigned an initial low value rating by UK credit agencies.
You begin with an empty “credit file” containing only your current address. Your rating then starts growing or dropping depending on how you manage your accounts and money. Your credit score does not really have much effect on your financial state until you begin planning on taking out a mortgage for a house or a loan for a car. However, you should make sure your credit report is up to date in order to build up your credit rating and avoid possible identify theft.
How do you build up your credit rating in the UK?
Firstly, it is important to register with your local council as soon as possible (register for electoral roll). Remember to register with council every time you move to different place in order to keep your personal records up to date. In most cases your landlord will pass your details on your behalf if you are renting a flat, but you need to make sure this is a case. You must fill in electoral roll form as soon as you get it through post or request it from your council if you have not been sent one. In around month’s time your credit file will be updated. Having registered for voting helps you get contracts (i.e. mobile phone contracts, short-term loans, etc.) easier as you have a proven record of your address.After registering with your council, make sure you have a UK bank account so that you can start building a “relationship” with them.
Next step: get a contract mobile phone deal. We already suggested getting an excellent pay as you go option, however, I would recommend switching it to SIM only deal after 3-6 months to start building your credit history. If you need high quality service and good value for money, we recommend getting one of the biggest network providers Vodafone, O2 or Tesco Mobile (online support only) SIM only packages. If you are student or employed it is easier to get accepted, therefore, it is better to wait until you start studying or working!
Getting your first mobile contract in the UK
If you need a new phone you could attempt applying for a 18-24 month deal which includes a mobile phone, however, if you are new to the UK, student or just started working it is a big chance you will get declined or at least you will be asked to pay a deposit. I was asked to pay £100 pounds deposit the first time I applied for a mobile contract deal as I was after the Blackberry device. After 6 months if you keep paying your monthly instalments you get your deposit money back on your mobile phone account, that means if you pay £25 per month, after 6 months you get 4 months “free” as you use your prepaid deposit to pay for your bills. The second option is to take out SIM only deal which could be on month rolling contract meaning you can cancel it anytime by giving months notice, or 12 months which offer better value for your money. After 6 months of using SIM only deal you can upgrade to mobile phone deal without a deposit!
After you get declined, you get a record in your credit file with indication that you have attempted to get a contract and got declined. If you attempt again, you have a HUGE chance to get declined again as they read the same file to make a decision! Having second decline means you can forget about getting a contract for the next 6 months. If you do get declined, make sure you are registered with your council, you pay all your bills on time and wait 3 months before attempting again! Make sure you have at least £1 in your account on the day of applying, you have not had overdraft for the last 3 months or so and you have paid all of your bills on time for the last half of the year. The third step to healthy credit file therefore is the later as the majority of the utility companies report your payments back to credit agencies.
The last step to put up your credit rating is to get a credit card. You should get your first credit card from your own bank (where you hold your debit card / current account) first. I previously mentioned building “relationship” with your bank and after around 3 years of positive cash flow (e.g. getting your salary paid in) you can go to your bank and ask for a credit card. If you are successful, wait at least 6 months before applying for a second one if you need to! Please remember to set-up a direct debit payment for your credit card (preferably in full!) as soon as you get it in order not to miss your repayment. If you miss out at least one payment for your credit card, you will leave a black mark on your credit file for at least a year!
Whats does a strong credit report/high credit score number give you?
Strong credit report and high credit score allows you to get mobile phone deals without deposit. If you have a good rating you could take a new phone deal almost every month! High credit rating will give you an opportunity to get the best credit card deals and the most importantly good deal for your mortgage in the future! I can give you a real-life example:
Say you are taking out a £200,000 loan with repayment period of 30 years for a future house. The bank is advertising it offers a great fixed mortgage deal with APR (Annual Percentage Rate) of 4%. You should remember one thing: you will get this offer only if you meet the minimum credit score requirement for that product. If you have a credit score of 750 or more you should be fine, however, if your score is less than that, your deal would be something like 5.3% APR.
- With 4% APR you would pay £954.83 a month for 360 months, totalling your payments to £343,738.8
- With 5.3% APR you would pay £1110.6 a month for 360 months, totalling your payments to £399,816
Having a good credit rating would save you over £56K on mortgage repayments!
Can I read my Credit file? How can I check my Credit rating?
You can request credit agency to send you a copy of your credit file. You can get a single copy of your credit file for just £2 from Experian (one the largest credit agencies) by clicking here. You will need to fill in some details online and you will be sent your password to access your report online and will get a hard copy by post within the next 5 working days.
Make sure you check that everything is correct and make sure you inform Experian with any incorrect information within 30 days! Look out for bank accounts, mobile contracts which you did not sign up for as this could be a case of identify theft meaning someone might have your personal details and took a contract on your name. Credit rating costs more and you can request it together with your credit report from Experian here. You will be offered a 30 day free subscription allowing you to check your report every month. If you do not want to be paying for this service, DO NOT forget to cancel it before 30 days run out!
We wish you the strong credit rating! ;)