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Tips to improve your credit score
Applying for a credit card can feel a little like running the gauntlet – you have to pass a credit check to succeed and you have no idea what will help your cause or stand against you. Don’t worry though – we’re here to help.
Below, we bust a myth or two about credit checking, and provide you with some tips on how you can improve your score.
No one rule for every lender
The most important thing to be aware of when you’re applying for a credit card or any other type of credit is that there is no one set of rules that every lender has to follow. In fact, each lender has its own specific criteria it measures applicants against.
What’s the good news? Well, the great thing about this is that if you’re rejected by one lender, it doesn’t follow that you’ll automatically be rejected by them all. While you may have failed to measure up against the lending criteria of the first place you go to, you might be accepted by the next one. There’s no such thing as a universal credit score.
Bag the best rate
Another myth is that your credit rating will affect only whether you’re accepted or rejected. Actually, if you are accepted, it will also determine the interest rate you may be offered.
You might be accepted for credit by the first lender you visit, but they may offer you a different deal to the one you were interested in - such as a credit card with a higher rate of interest than the one you had applied for. Again, just because you’re not offered the deal you want by the first lender you apply to doesn’t mean you won’t by other lenders either.
What does stand against you being accepted?
While no one lender’s criteria are the same as the next, there are some things most of them are looking for. Here’s what might be standing against you:
- Historic debt – Even if you are the perfect borrower now, your history could still stand against you. Things like missed or late payments remain on your file for six years, and may cause some lenders to see you as a risk.
- CCJs – As well as missed and late payments, defaulted payments that resulted in a CCJ being pursued by your lenders can stand against you. CCJs remain on your credit report for six years.
- In the red – Having lots of forms of credit attached to your name might also go against you in the eyes of a lender. Even if you’re managing it all well, they could decide that adding another credit card or loan to the mix will stretch your finances too far and mean you’re more likely to default.
- Don’t look desperate – Have you recently made several applications for credit, even though you weren’t a regular borrower before? Be careful, as a lender might think you appear desperate to borrow.
- Rolling stone – As well as evidence of responsible borrowing, lenders also like to see signs of stability in their applicants. This means that living at one address and holding down one job for more than a few months at a time will stand in your favour – but being constantly on the move could count against you.
How to improve your credit rating
Now you know what could be working against you when you apply for credit, how can you improve your rating to give you the best chance of getting accepted AND netting the deal you want? Well, because no two lenders use the same guide, there are no hard and fast rules. However, addressing the following could help improve how most lenders perceive you:
- Get on the electoral roll – This all goes back to that stability we mentioned that lenders like so much. Registering your name and home on the electoral roll means they can search your address history with ease. Many also prefer to see a landline on credit applications rather than a mobile number.
- Update all your account information – Make sure it’s the same address and details on all your credit accounts.
- Cancel unused accounts – If you have a credit card you no longer use, cancel it. Otherwise you’re at greater risk of falling victim to fraud or theft.
- Don’t borrow more – When you apply for credit, the lender conducts a credit check and this is recorded on your credit file, so hold off completing any applications that aren’t really necessary.
- Don’t make lots of credit applications – Another reason not to embark on a borrowing spree is that lenders may view it as desperate behaviour from someone who needs money fast and might struggle to repay it.
- Don’t rely on your overdraft – If you’ve been living in the lower end of your overdraft for months or even years, this will have to change. Lenders might think you’re struggling if you’re unable to get out of it.
- Remember your other credit agreements – It’s not just your overdraft and any traditional credit agreements that you need to keep on top of, but some things you might not have thought of too. For example, some lenders turn down applicants if they can see they’ve missed a mobile phone bill, or if they’re in utility arrears. From this summer, credit reference agency Experian also plans to add rental payment information to people’s files.
- Start using credit responsibly – If you don’t currently have any credit products, this could also stand against you. Lenders want to see evidence that you can borrow responsibly and pay it back again. One way to do this is to use a ‘credit builder’ type product that allows you to borrow a relatively small amount of money, but to build up a history of using that credit responsibly and repaying it on time.
- Check and check again – Check your credit report thoroughly and if you spot any mistakes, take steps to get them corrected and removed from your file.
- Regular review – You might only think about your credit rating when you want to borrow, but it’s something you should keep an eye on regularly. That way you can correct any errors and continue to improve it so you’re ready next time you want to apply for credit.
If you do have a bad credit history, the Ocean credit card – 34.9% APR representative - might be an option for you. Providing you keep up with the repayments, using the card could help you to improve your credit score gradually.