Improve Your Credit Rating – 5 top tips!

There are no fixed rules how financial institutions view your credit worthiness, and it’s much harder to improve your credit rating than to lose it! Each lender takes a different view on people’s financial information and they don’t make their views public otherwise people could use it to manipulate their credit applications.

There are two main steps in assessing your credit worthiness. These days the way lenders look at you is as much related to your potential profitability to them as a customer as it is a matter of financial risk:-

Stage 1

Companies considering offering you credit will search one of the main credit referencing agencies Equifax, Call Credit and Experian, to see what information they have on you.

This includes your financial history over the last 6 years and how you’ve handled credit, your payment history on credit cards, store cards & loans. It can also include information on your utility bills and mobile phone account.

Once they see this, they may reject you if they don’t like what they see. If your payment history is OK (or at least clear of defaults and County Court Judgments) they normally proceed onto a second stage which will which include a credit “score”.

Stage 2

The  credit score is a summary of indicators to how good you’re likely to be as credit customer, a review of all your data – information you may have supplied on application forms, and also information that maybe held by the credit reference agencies. The potential lender will allocate a numerical score against all this information, some things about you give a positive score, and some a negative one.

Your credit score and credit history will be used to assess whether you’re likely to be a profitable customer for the bank or credit card company. Some indicators of your financial responsibility may give out different messages than you might think. If, for instance, you have a track record of paying off your credit card account every month on time you’re obviously credit worthy, but you’re not going to be a very profitable customer. This may count against you with some credit card companies.

 

Items with a positive score will be those that indicate financial responsibility & stability.

  • Being a home owner
  • Being registered to vote at the address you give on the credit application
  • Having other credit agreements and them being paid off on time
  • Living at the same address for several years
  • Being with the same bank or building society for a number of years
  • Having a mortgage and this being paid on time

 

Things that may count against you will include:-

  • Lack of any real credit history
  • CCJ’s registered against you
  • Defaults or late payments on loads or credit agreements
  • Late payments of bills or credit cards
  • If you’re a tenant or live with family that’s not as positive as being a home owner
  • If you’re young (under 25) that’s also not viewed as positively as someone who’s older

 

Once this review is done, this will give a total of your “financial responsibility points”, your credit score. Depending on the financial product you’re applying for the score will either give you a “pass” or “fail” in creditworthiness for that product. Now days the lender could also use what they call risk based pricing, which means they make you an offer of credit, but they may charge you a higher interest rate if they think you present an above average risk.

What the lenders and credit card companies are trying to predict is your future financial behaviour, your likely income stability and the chances of you paying back the money on time. A key indicator to them of how you handle credit is the kind of balances you maintain on your credit cards. If you have regularly have a residual balance of 35% or less of your available credit (or combined credit limits), you regularly use your credit cards, and pay your monthly payment on time, you will considered very favourably.

You may feel that the way institutions make these decisions is unfair or doesn’t take account of your full circumstances. That may well be the case, and if you feel that a bank or credit card company has assessed you wrongly or incorrectly, you can usually appeal their initial decision. If they have a local branch, go and see them and have a chat.

That said, it’s their money, and they have to have a way of looking at people and making informed decisions! Because each financial institution credit scores differently, the good news is if you’ve been rejected by one company, you maybe accepted by another. Applying for lots of different cards or loans in the same month will count against you though. If you’re turned down, follow the steps below and then try a different institution.

If you think your credit rating is poor, here are our Top 5 Tips for improving it! Credit referencing agencies take a long term view, and so if you’ve had problems in the past, it may take a while for their view to improve. However, the sooner you start to take positive steps to improve your credit rating, the sooner their view of you will improve!

 

Write or contact online the top 3 credit reference agencies and find out all the information they have on you. If you have access to the internet, you can even access this free online. You will need to prove who you are and where you live. If there’s negative information about your payment history that’s correct or incorrect, the agencies are good at telling you how to deal with this. Their websites offer lots of guidance on your credit file and how to improve and monitor it.

 

Next, make sure that you’re listed on the voters or electoral roll at the address where your bank account or other financial accounts are registered. As well as entitling you to vote in local and Government elections, its viewed as a very important when assessing your credit worthiness. It can take several months for this information to appear on credit reference agencies files, so take that into account.

 

Once you’ve sorted any negative information held about you, start to take small steps to gain easy credit, and to create a positive financial trail of information about your finances. Don’t borrow money you don’t need, or take on financial commitments you can’t afford, but make sure you have a proper bank account, and you can look at and compare prepaid credit cards – some of these like the CashPlus Gold Mastercard have built in CreditBuilder facilities to create a positive record of payments. Getting an annual mobile phone account or a land-line telephone number will improve your credit score. There are also credit cards for people with a poor credit history. If you get accepted for one of them and use them responsibly, this will positively affect your credit rating.

 

Once you have a credit agreement or credit card, its vital that you always stick to the payment terms. In the current very computer driven age we live in, almost everything you pay for which involves any kind of account, or paperwork being sent to you address is being monitored by the credit referencing agencies. This includes monthly mobile phone contracts, and even your utility bills, gas, electric etc. If you miss or you’re late with a payment, it can take years to repair your credit rating. Don’t sign up for any kind of regular monthly payment without being totally sure you have the budget to pay on time EVERY month.

 

Avoid companies that claim to “repair” your credit rating, they often charge large up-front fees, and they can’t offer any guarantee of a positive outcome. Recent press reports even indicate that a lot of their activities can even harm your future credit rating.

If you have serious problems dealing with debt or credit cards, there are a number of agencies and organisations who will really try to help.

If you’re worried about identity fraud, we have a new feature on combating and monitoring identity theft.

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