Why bother about it?
Your credit rating will impact your capacity to borrow money. That includes using credit cards, getting a loan, or taking out a mortgage. So, if your credit rating is lagging, there are many ways to build it up and sort out those problems. Here’s how.
What impacts the credit rating?
- Current high levels of debt: banks as well as credit card companies will likely be a little nervy about lending you more money as it could mean you’re financially overstretched. Debt management is the name of the game here.
- Making late payments or missing them altogether: doing this on credit cards, mortgage, a personal loan, electric, gas, water bills, will mean that it’s reflected on your credit file for six full years.
- Getting a CCJ: a CCJ is a county court judgment, though in Scotland it’s called a decree. You get lumbered with one of these if you have an unpaid bill. This in turn will seriously impact your credit score and a CCJ or decree will stick on your credit file for six years.
- Making applications for lots of credit simultaneously: if you do this, it will show up in a negative fashion on your credit file. So, avoid it. Stagger the applications. If you merely wish to find out rates, get the lender to register a “quotation search” on your credit report and not a “credit application search”.
- Opening credit card accounts and not using them: a lender will assess how much credit you have available, and not merely how much you’re currently using.
- Credit report mistakes: lenders check your credit report as part of the credit scoring process. If your report is messed up on account of someone else’s mess, get in touch with the credit reference agency to get it removed.
- Electoral register: you have to be on it as lenders use it to verify you are who you claim you are.
- Moving around: if you move around a lot, meaning that you move often, it makes lenders a bit ‘uncomfy’. They prefer you to stick to one locale for some time.
- Mixing it with someone who has poor credit: avoid mixing it with a person with poor credit. Don’t open a joint bank account or share a credit card or a loan. This is known as “financial association” and it will have an adverse impact on your capacity to gain credit.
Check your Credit Report
Do this at least once a year. You may have been the victim of fraud or your report may carry some errors. You can get a copy of the report for a couple of quid from one of these credit reference agencies:
Or use the Callcredit facility on the Noodle website (yes, as in “spaghetti”) which is entirely free-of-charge.
Fix Credit Report Mistakes
Spotted a mistake? Challenge it by complaining to one of the credit reference agencies listed above. They have a max of 28 days to remove the error or tell you about why they disagree with your concern.
You can also approach the lender who is responsible for the error directly and file a dispute with them.
Improving your Credit Rating Now
Poor credit history? No credit history? You can take a number of immediate steps to improve the scenario.
- Don’t apply for any credit until any problems on your credit file are sorted.
- Get onto the electoral role: find your local council by visiting this website: About My Vote. Then, complete the form and get it back to the local electoral registration office, pronto!
- Ditch those unused credit cards: don’t trash them yet. Cancel them instead.
Improve your Credit Rating over the Longer Term
Had debts before? You now need to prove to potential lenders that you can be responsible when borrowing. Given time, by doing this, your credit rating will improve.
Pay on time
Pay your bills/ debts early or on time, which shows you are responsible, at least in terms of borrowing money.
You can improve your credit by using a prepaid card with a credit-building option. It works like this: the pre-paid company will lend you a small amount – around 60 quid. You sign their credit agreement and then pay them back a fixed monthly sum, normally around £5 until the entire loan is paid off.
Easy, right? And it’s all recorded on your credit report.