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 lenders could negatively affect your application.
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!
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.
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.