How To Improve Your Credit Rating

The better your credit score, the more likely you are to get credit at the most competitive rate. It is therefore important to do your best to manage this information so you appear in the best possible light to potential lenders.

Credit reference agencies compile credit reports about people from information supplied to them. They do not themselves make decisions about credit applications – they simply provide information to lenders who can act on this information as they see fit.

Here we explain some tips on how you can influence these factors and take better control of your credit rating.

1. Make sure you’re on the electoral register

This is used, in part, by lenders to verify that you are who you say you are. It also an indication of stability of circumstances. If you’ve not registered see aboutmyvote.co.uk.

This is not only beneficial for credit checks but can extend to any application or vetting where proof and stability of circumstances is a factor.

Also, you may be one of approximately 3 million adult non-UK passport holders currently living in the UK. You won’t be able to vote at general elections, but you can still register to vote for local and (if your passport is from the EU) elections for the European Parliament.

So, even if you’ve no interest in ever voting – still get on the register.

2. Check your credit report regularly

View your credit report about once per month to make sure the information is as you would expect.

Pay special attention to any recorded searches you do not recognise. Whether genuine or fraudulent, unsuccessful credit applications have negative impact.

Account balances are not current, but should be no more than two months behind. This way you can see and react to fraud or errors quickly.

3. Don’t miss payments

All payments – both made and missed are recorded. So, future lenders are looking for a good history of made payments.

If an account reaches 3-6 months in arrears – your creditor can mark it as being in default – which is a more serious black mark.

If you want to end a contract of some sort, such as a mobile phone or some other contract where credit is involved, do not just cancel the Direct Debit and think that is that.

You need to have concluded your agreement with your supplier first; otherwise attempted payments can fail and be recorded on your credit report.

4. Pay off debts subject to court action – quickly

If you’ve broken the terms of a credit agreement you could find yourself with a county court judgment (CCJ), detailing the terms on which you are now formally required to repay the debt.

The CCJ is recorded in the Register of Judgments which is a source of data for credit reports.

• If you pay the debt within one month, it is removed from the register.
• If you pay later but within 12 months, it is marked as satisfied, but remains on the register.

Your credit record will sync with this information within a month or so.

Being satisfied is not as bad for your credit score as an unpaid CCJ would be.

5. Close unused credit card accounts

If you have credit cards that you don’t use, especially if they have a high credit limit, you should think about closing them (not just cutting up the card).

When applying for credit, lenders not only look at your current debt levels, but how much you could borrow from existing credit agreements. If you want to keep such cards you could consider reducing the credit limit on them.

It’s generally a good idea to limit credit levels to what you expect you would or could need.

6. Be aware of ‘financial associations’

Be aware of whom you are connected to financially. This is anyone whom you share a bank account or have applied for credit jointly. This can make a difference to you if you apply for credit on your own or with this person.

If you’ve separated from a partner you must break all financial ties – that is, close all joint accounts and clear all joint debts.

Once you’ve broken all ties, you can apply for a Notice of Disassociation to be added to your credit reports to explain are not longer financially connected.

See Correcting Errors On Your Credit Report for details.

7. Correct any mistakes

If there’s information on your file that’s wrong, you have the right to get it corrected.

See Correcting Errors On Your Credit Report for details.

8. Explain reasons for missed payments

If there is information on your credit report that is factually correct but you believe it unfairly affects your ability to obtain credit, you may be able to get it removed.

In the first instance, appeal to the creditor who supplied the information and ask them to have it removed.

If that fails, you can apply for a Notice Of Correction to be placed on your credit reports.

See Correcting Errors On Your Credit Report for details.

9. Don’t apply for credit knowing you’re likely to be declined.

Declined credit applications are shown on your credit report. The more credit application searches made against you – the more likely you are to be seen as a bad risk.

If you’re just trying to get a specific quote for a loan, ask the lender to do a ‘quotation search’ or a ‘soft search’, not a ‘credit search’. This means that while an enquiry will appear on your file, only you can see it. Lenders can’t, so it won’t have an impact on your credit score.

10. Have credit and use it

If you’ve no debts, you’ve no history to repaying debts in a timely manner, so lenders have little information to base judgement on.

If you have little history or bad credit – consider a credit building credit card.  These are designed for those looking for their first credit card or wishing to improve a poor credit history, but take care to repay it in full every month so as not to pay any interest charges.

11. Avoid paying for insurance monthly (if you can)

If you decide to pay for insurance by monthly instalments, a ‘hard search’ will be carried out and this will affect your credit score. It’s always worth paying upfront if you can – some insurance providers charge high interest for the privilege of paying monthly.

12. Avoid bad credit choices

By this we mean avoid in particular pay day loans and using your credit card for cash withdrawals.

Many lenders see it as evidence of poor money management which can damage a mortgage application.

Further reading : Correcting Errors On Your Credit Report