Improving Your Credit Rating

Your credit history is used by lenders to determine whether or not they would like to lend you money. A poor credit rating, and perhaps surprisingly, no credit rating at all, can leave you in a position where it is difficult for you to borrow.

Whether you have a black mark against your name because of a recent County Court Judgement (CCJ), a poor track record for repayment, or just a total lack of credit history, the aim of this guide is to help you repair your dwindling credit rating, or build up a strong new one, to improve your chances for successful borrowing applications in the future.

How to avoid a poor credit rating

Ensure that you are on the electoral register

Lenders use the electoral roll to confirm your name and address so it is vital that you do not fall at the first hurdle with unverifiable details. There is a rolling register for those who have recently moved so it is not necessary to wait for an annual list to be compiled.

Foreign nationals and other citizens that are ineligible for voting can send proof of residency to all of the credit reference agencies and ask them to add a note of confirmation.

Make sure that you and your family pay your bills on time

A lender will be able to access the credit ratings of anybody who is financially linked to you and their decision may therefore be affected by any negative information relating to your family members/partner. If you are estranged from your family/partner you can request 'disassociation' to avoid this type of problem.

Avoid the rejection spiral

A long string of rejected applications will harm your chances of securing credit in the future. If you are being turned down, ask for a review of you application from the people turning you down, work out why you are being rejected, and try to put it right.

Do not just keep applying in the hope that there is somebody out there that will eventually lend you the money. Doing your research and ensuring you fit the criteria before you apply is the best way to avoid application rejections staining your credit rating.

Time your applications wisely

Spacing out your applications will give off a better impression, not just for credit but for car insurance, mobile phones, and anything else that will leave a search on your file.

With regard to timing, moving house can also disrupt the likelihood of you being successful in your applications. So, if you know that a move is imminent, apply early.

Similarly, you are far more likely to be accepted for a loan if you are earning. So, if you are expecting redundancy or leave in the near future, get your application in beforehand.

Get quotation searches as opposed to credit searches

Getting quotations for credit can be damaging to your credit score so always try to ensure that your application is a realistic one before you go ahead.

If you do decide to go ahead, ask the lender to do a quotation search as opposed to a credit search. Many lenders will not be able to do this but it is worth a try, because if they can, then it will not have any negative affect upon your credit rating.

Give the impression of stability

Stability is not necessarily something that you can quickly manufacture before you put in your application for credit. However, it is definitely something that will stand you in good stead.

Home owners are more likely to be successful than those who are renting, as are those who are employed rather than self-employed, and those who have been with the same bank for 20 years have an advantage over those who chop and change.

But, on a level that is easier to manipulate, something as seemingly trivial as putting down a landline as your contact number as opposed to a mobile phone number will help with security checks and give you an advantage.

Rid yourself of unused baggage

Lowering the amount of credit that could potentially be available to you should be helpful when applying for credit. So, cancel any unused credit cards, debts and accounts to minimise your possible access to credit.

Correcting mistakes on your file

It is not unheard of, and it is certainly not impossible, for the information on your file to be incorrect, which would unfairly affect your credit rating.

To find out what information is held on your file, you can pay £2 to look at your personal credit information held by Experian and Equifax, two of the biggest credit reference agencies in the UK.

If you feel that there is incorrect information, or that you are being misrepresented by the information that they have, you can add a statement of correction to your file, which can be up to 200 words in length, and will be supplied to potential lenders in the future.

Play along

Credit ratings help potential lenders to predict how you would behave if they were to give you a loan. And so, a complete lack of credit history makes it difficult for them to do this and, subsequently, it makes it more difficult for those without a history to have a successful credit application.

If you are looking to repair a damaged rating then, or simply build a respectable one up from scratch, an extremely superficial and undesirable, but effective, solution is to apply for a store card or a credit card, with a rate in the region of 30%, and begin to use it for purchases.

The idea here is to spend a little on these cards each month for around 6 months, whilst repaying in full straight away so that you do not bear the brunt of the obscenely high interest rates. It takes some time for your new credit history to gain momentum, but it will help prove to lenders that you are reliable and credit worthy.