How to ensure that you have the right credit score

If you have been consciously taking the necessary steps to ensure a healthy credit score, then you might be in for a rude awakening. A recent study revealed that more than 10 million people in the UK have spotted problems and inaccuracies in their credit reports (And yes you read it right, a whopping 10 million!). What’s even disturbing is the fact that the figure can even be greater as there are plenty of Britons who fail to regularly review their credit files.

And the most frustrating part about this kind of issue is that you may only realize that your credit file is not the way it’s supposed to be once you have made your application for a credit product. Now if you think that there is no need to worry about such a small error, then you are dead wrong. Credit file errors have been the primary cause of credit card and loan application denials for many borrowers even those that have been keen enough to keep their credit history positive.

When you need to take out a loan because of an emergency situation, it’s easy to get pissed when you get denied after putting so much time and energy on an application simply because of an error in your credit file.

With that being said, it’s best that you protect your credit score from potential errors to ensure that your chances of getting approved for a certain type of credit are as good as it should be and below we will show you how.

Defining a credit score

Before we dive into the possible ways in which you can safeguard your credit score from potential errors, it might be best to know what a credit score actually is so we will know how it works and why errors happen despite the advance technology overseeing it.

Simply put, a credit score is a numerical value assigned to people who have used credit in the past. As a borrower, this number is important because it is the single most important thing that majority of lenders will look into to determine whether or not you are a trustworthy borrower. Normally, the higher the number is the “more trustworthy” or “less risky” you are.

We won’t go down to the technical details on how credit scores are calculated or why Mr. Brown has a credit score of 400 and why Mrs. Lee has 800. Generally speaking, the three major credit reference agencies in the UK, CallCredit, Equifax, and Experian, will come up with a number based on numerous factors that paint a picture on whether or not you have been disciplined and responsible in handling debt in the past. Missed payments can negatively impact your score and be paying on time can be a positive factor.

Credit scores, however, will only appear once a lender grabs it from the credit agencies mentioned above to evaluate your application for a loan. They also come in an assortment of forms and could vary depending on the kind of financing service that you are applying for. This means that your credit score may change from one lender or financial product to the next (e.g. a home loan may use a different scoring system from an auto loan).

The importance of credit scores

In the past when credit scores have yet to exist, evaluating a borrower’s loan application was manually done by the lender or its loan officers. This meant conducting long interviews with the borrower and a thorough inspection of his or her credit history to spot possible red flags like bankruptcies, multiple late payments, and the like.

This kind of process was not only slow and tedious, but it was also inaccurate simply because as humans, we are susceptible to mistakes and prejudices. This often led to lending decisions that were based on subjective conclusions, often overlooking a potential borrower’s ability to manage and pay off credit.

With the advent of credit scores, however, the lending process became a lot more accurate. This is because lenders will rely on a numerical value that is dependable and unbiased in determining if an applicant is qualified to use their loan products. It also made things a whole lot faster and easier as the applicant will no longer have to endure time-consuming and nerve-racking interviews and submit piles of documents to support his or her case of creditworthiness. It also allowed borrowers to access financial products that were purely suited to their ability to pay and not on some unbiased factor like age and race.

Where credit scores are used

Credit scores are not only used by banks and other financing institutions but by other brick and mortar business as well such as car dealers and retail stores. For lenders, they continuously rely on credit scores to outline a person’s past attitude and behavior towards debt and vital payments.

This prevents them from the painstaking process of manually going through a potential borrower’s profile and allows them to make quick, pin-point lending decisions so they can cater as much borrower applications as they can.

While there are other aspects that will be highlighted in evaluating an application, such as your monthly earnings, affordability, and the like, credit scores are one of the most important factors to determine an applicant’s overall creditworthiness.

Credit scores and how they are affected

There are various details that affect your credit report an this will differ on the kind of model being followed. Typically, your credit score is impacted by factors in your report including:

• Amount of missed payments
• Amount of debts and their nature
• New inquiries made by lenders on your credit profile

It’s important to note, however, that credit reference agencies are not permitted to utilize demographic elements as mandated by the Equal Credit Opportunity Act. These elements include ethnic origin, the colour of your skin, your belief, gender, age, and marital status. This helps combat bias and possible discrimination. 

There are lenders, however, that are allowed to use their own personal scores that are based on factors like monthly earnings, nature of work, and personal address.

How credit score errors occur

In most instances, credit errors occur because a credit agency unknowingly inputs the wrong information in your file. For instance, they could have entered a late payment in your report for a specific bill or loan even if the opposite is true.

There are also instances when the error is caused by just simple spelling mistake on your residential location. What happens is when a bank or lending company conducts a credit check, that specific check will be directed on the erroneous address which would result to a misplaced credit score.

Another reason why there may be inaccuracies in your credit report is brought about by the painful reality that identity theft exists in the loan industry. What happens is another individual will use your personal identity to obtain credit products like credit cards, store cards, and the like. The fraudulent individual will accumulate huge deficits on the credit products with zero plans of paying them back. Basically, that person will be taking all the benefits of the credit purchases leaving you only with a devastated credit score due to unpaid bills and debts.

How to correct credit errors

The moment you detect or are informed of an inconsistency in your credit report, the first and best thing that you need to do is to correct it ASAP. You can go about this in two ways.

First is through a credit correction company who will rectify any discrepancy in your file. While you won’t be breaking any sweat in the process, as the company will be the one to do all the necessary steps to get the job done, it won’t be for free and the price for the professional service is often hefty.

Now if you don’t like the idea of shelling out some of your hard earned cash to deal with an erroneous credit file, the best thing would be to pursue a DIY (Do it your own) path. Here are the steps that you need to follow to succeed in the process:

1. Reach out to the lender or credit company that brought out the erroneous report. For instance, if a credit card was involved in such an error, be sure to contact the credit card company.
2. The lender or credit provider will mostly require you to submit all the information necessary to validate the inaccuracy. This could entail submitting copies of your purchase receipts or withdrawal slips.
3. If the lender or credit provider is convinced that there was a mistake in your credit file, they will be the one to correct this in their records. This correction/corrections will then be submitted to the credit bureaus that are in charge of storing everyone’s credit profiles. Bear in mind, however, that the process involved in rectifying the error may take as long as 30 days.

It is possible that the lender or credit provider will disagree with the mistake in your credit score. If such is the case, then it may be necessary to forward the problem to the credit bureaus who will be the one to settle the matter after a thorough investigation. But if its a case of identity theft, the best agency to handle your case would be the police.

Protecting your credit score from potential errors

Credit score mistakes happen all the time and this is something that is beyond your control. With that being said, the best thing to do is to focus on those things in that are well within your abilities and they include spotting errors and learning how they occur.

So you can spot errors at the earliest time possible, one effective practice would be to review your credit file constantly. While this may sound quite like a taxing ordeal, the good news is detecting errors has now become a whole lot easier. For instance, you can rely on numerous hosting companies online like Noodle that gives you the ability to review your credit file without any kind of payment in return. What’s more, Noodle will also notify you every month so you can stay updated on the latest credit actions and activities that you have done in the last 30 days.

All you need to do is spend a little of your time at the end of every month to check your credit file and see if there are any discrepancies. With this little sacrifice, what you get in return is a flawless credit report that won’t give you any headaches in the future when you apply for a loan or certain type of credit product.

Improving your credit score

If you want to have a positive credit score, there are numerous ways in which you can go about it. One of the most important is staying on time with your payment duties. Never be late and always stick to the payment terms and conditions. And regardless of the size of your bill, whether it’s a small or big debt, it’s extremely important that you make the proper payments on the agreed schedule.

Aside from sticking to your payments, its also crucial to avoid taking out multiple debts at once, to steer clear from rolling your debt for an extended period, and apply for credit products without checking first if you are qualified. Every time you apply for a loan, it will be recorded as an inquiry in your credit file, telling lenders that you have the intention of taking out another debt.

When you take out a loan, use it as an opportunity to not only satisfy an important financial need such as covering emergency expenses but also an opportunity to build your credit history to better standings. When you make the proper repayments on your loan, this will paint a positive picture in your credit profile and signal to lenders that you are a responsible and trustworthy borrower.