Ten Tips to Improve Your Credit Rating

You are probably aware that every adult has a credit rating, and that lenders will check yours before agreeing to give you a mortgage, loan, credit card or any other sort of credit. You might also know that there are credit reference agencies out there who keep a record of your credit rating. What is not so commonly understood is how an individual with a low credit rating can improve it. If you are planning to apply for credit at any time in the near future, be sure to run through our top ten tips first.

1. Understand what a good score is!

There is no such thing as a standard credit scoring system and all lenders use their own unpublished scale when scoring you. In most systems, a score of about 600 to 750 or higher is considered good, although the criteria for scoring varies depending on the lender.

2. Get settled

If you’ve lived at the same address all your life, worked at the same factory for years and still have the same bank account you opened at school you will score well for stability. Of course, change does happen, but the less flighty you can be, the better for your credit rating.

3. Update your name

If you change your surname, by getting married for example, the credit reference agencies might treat you as a different person with no credit history. Tell them as soon as you can so that your identities can be merged.

4. Ditch harmful connections

If your partner, or anybody else you might be tied to financially, has a bad credit score, you will be tarred with the same brush. Where possible, you should separate your finances from theirs (e.g. close joint accounts and use your own personal accounts). Then you will need to fill out a ‘Disassociation Form’.

5. Consider a ‘Credit Builder’ Credit Card

The annual APR is higher than a standard credit card, but if you have a poor credit history or no history at all, a ‘credit builder’ credit card might be just what you need. Be sure to stay within limits and pay at least your minimum balance when due.

6. Investigate Hidden Debt

Often it’s not the debt you know about that’s the problem, it’s the debt you didn’t know – or had forgotten – you had. Check your credit report for old bank accounts with overdraft facilities, un-cancelled recurring subscriptions and unused credit cards. Credit cards should be cut through the strip and chip.

7. Correct Errors

Your credit report should be up-to-date and accurate, but overly zealous lenders and even human error can cause problems. If you think a lender has provided incorrect information, contact them and ask them to correct it. If they refuse, tell the credit agency and send them a ‘Notice of Correction’. The financial ombudsman service have the power to make lenders correct inaccuracies if necessary.

8. Get Registered

According to April 2011 figures, 8.5 million people were not on the electoral roll. If you are one of them, you could get an application for credit declined. Go to the government website (www.gov.uk) to find out how to get registered. You will then need to track down your local Electoral Registration Office for written confirmation and send this on to the reference agencies.

9. Show Them You’re Credit-worthy

Exceeding credit limits and missing payments will tarnish your record for six years, so try to avoid it. It is often possible to set up alerts with lenders to warn you if you are approaching a limit. Most online calendars can be set to remind you of important dates – like payment deadlines.

10. Don’t be Greedy for Credit

Applying for lots of credit in a short period of time is a warning sign of financial stress, and a ‘footprint’ is left by every lender accessing your credit report. Only apply for the credit you really need and can manage, and space out separate applications.