If your credit rating isn’t very good then you could struggle to borrow money, as lenders look at your credit rating before they approve things like loans, credit cards and mortgages.
You might also miss out on the best deals, so it’s worthwhile devoting some time to trying to improve your credit rating.
The first thing to do is to check your credit report and fix any mistakes on there. There are three main credit reference agencies used by lenders: Equifax, Experian and CallCredit. Equifax and Experian offer free 30-day trials for their credit report service and CallCredit offers a site called Noddle which currently has no charge. You can also send off for a copy of what they hold on you for £2.
If you do spot any mistakes on your credit report you have the right to complain and the credit reference agency has 28 days to either remove the error from your report or explain why they won’t. While the credit reference agency makes its review, lenders will not be able to take the ‘mistake’ into account as it will be marked ‘disputed information’.
If you want to explain to lenders viewing your report why something happened in the past, you could ask to add a statement of up to 200 words (known as a notice of correction) to your credit report. You might want to show how your situation has changed and that you are now in a much better financial position. It is best to keep any statement as concise as possible, so consider asking someone you know to read through it.
How you could improve your credit rating?
There are a number of things that you could do to try and boost your credit rating:
1. First things first - if you aren’t on the electoral roll then you could visit Gov.uk and register to vote. To prevent fraud, credit agencies will use electoral roll information to confirm your identity. If you aren’t on the electoral roll then you could struggle to get any credit.
2. Check that your credit report lists your current address. Also ensure that all your existing financial and credit agreements (savings accounts, bank accounts mobile phone contracts etc) are all linked to your current address. If anything lists your previous address instead make sure you update it as soon as possible.
3. If you have very little credit history there are ways of establishing a good record, perhaps in advance of applying for a mortgage, for example. A credit builder credit card, such as the bad credit credit card from Ocean - representative APR 34.4%, will enable you to get a credit card with a relatively low credit limit. If you use the card regularly to make small purchases and make sure you pay the bill off in full every month, this will help you establish a solid record of responsible credit use. However, not doing so could harm your credit rating.
4. Cut up your cards! If you have lots of existing lines of credit (such as a number of credit cards) that you aren’t using this can count against you when applying for new credit. Cut up any cards you don’t need and be sure to close the accounts with the lender.
5. If you do have a credit card try not to withdraw cash using it. Lenders will often view this as poor money management*. Some lenders will also refuse to approve mortgages for people who have used short term loans for the same reason.
6. Use Direct Debits to make sure you are never late with a bill payment or a repayment. Even paying your mobile phone bill a few days late can show up on your credit history. Direct Debits are a great way of making sure your bills are paid on time without you needing to remember to pay them.
7. If you have a joint bank account, loan or mortgage with someone who has a bad credit history then you are financially linked and this is likely to affect your credit score as lenders will look at both yours and your partner’s credit histories when deciding whether to give you credit. You could be better off separating yourself financially from them so that lenders don’t look into their credit history as well as yours when you apply for credit.
If you used to have joint finances with someone but went your separate ways, it might be worth writing to the credit reference agencies and asking for a notice of disassociation. That way you will no longer be financially linked.
8. Try not to apply for lots of credit at the same time as it will show on your credit report and lenders may see it as a sign of desperation. It is much better to stagger your applications, for example, if you are planning on applying for a mortgage in three months’ time, it’s a good idea to hold off applying for lots of credit cards.
If you want to know which credit cards you are most likely to be accepted for before you apply then it may be a good idea to use eligibility checkers such as those on the MoneySavingExpert.com website as they use a soft search which lenders can’t see when they check your credit report. This could help you avoid multiple rejections.