10 quick and simple ways to improve your credit rating
1 September 2007
Reproduced by kind permission of The Motley Fool (www.fool.co.uk)
Everything in your financial history can affect your chances of being granted credit or a loan. If you understand your credit record, you can improve it – and your finances.
Credit is essential and very useful if used well in the 21st century – often the route to homes, cars, travel, furniture and much, much more. The key to getting access to the money you want, when you need it, is your credit report.
Your credit report is your personal financial history, covering a wide range of information, such as your credit card payments, details of loans and previous mortgages and a record of any court judgments or Scottish decrees. It also confirms whether or not your name is recorded on the electoral roll at your current address and specifies which organisations have searched your credit report.
Organisations take this information, plus information from your application, be that by post or online, to generate a credit score – a number that they use to estimate the likelihood that you will repay what you owe and make your repayments on time. The information in your report and the score help them to decide whether or not to grant a loan and to set conditions such as interest rates.
Every organisation uses a slightly different formula to work out your credit score, which can even vary depending on the type of finance you want. Every loan application you make can therefore generate a different credit score. Your credit score will also change as your circumstances and the information in your credit report change.
In general, a higher score means you will find it easier to get the money you need. A poor score can result in a rejection or adversely affect the terms. For example, it can mean that you pay a higher rate of interest.
Following these simple steps could lead to a marked improvement in your credit report and increase your credit score, which will help you to get the loan or credit card you need.
1. Check your credit report
One of the easiest ways to check your credit report is with online credit monitoring services. It means that you can check your credit report as often as you like and often will receive updates by email or text message when there is a significant change to your report, such as a new search by a lender.
2. Set the record straight
If anything on your credit report needs updating, ask the credit agency to investigate and amend the record accordingly – they will also tell any companies that have searched your report in the last six months if it changes information on your report.
If you are registered on the electoral roll and this is not shown, ask the credit agency to investigate. And if you haven’t registered, do so immediately. You can use www.aboutmyvote.co.uk to register.
If there are special circumstances surrounding a particular entry – for example, you may have been ill and missed a few payments on a loan, although this has never happened before or since – the credit agency will help you to add a short note, called a Notice of Correction to your report, so lenders can see that you are unlikely to get behind again. If you add a Notice of Correction to your report, lenders must read it, although they do not have to take it into consideration before making a lending decision.
3. Protect your identity
If you notice something surprising on your credit report, such as a loan application you did not make, you could be a victim of identity fraud, when a criminal impersonates you to take out loans and credit cards. It is one of the fastest-growing crimes in the UK, affecting more than 120,000 people and costing the country £1.3 billion a year, according to the government.
A credit monitoring service means that you will be told if lenders check your credit report in the same week that any new applications are made.
If you discover anything unusual or unexplained in your credit report, use the CreditExpert site to tell Experian. They will help you to sort it out and ensure that you don't end up with incorrect information in your report.
4. Keep the record straight
Your credit report includes a section listing anybody with whom you have a joint account, mortgage, loan or credit card. These are your financial associates. Lenders may take a look at the financial histories of these people when you apply for a new loan. If they have a poor credit record, you could be rejected.
If you are now financially independent, are no longer part of a previous financial unit or no longer share a joint financial agreement, you need to advise the credit agency and they can remove the financial connection from your credit report.
5. Don't leave unnecessary footprints
When shopping around for credit, ask companies for a quotation before making a formal application. Always ask if the company needs to check your credit report to give you a quotation, make sure it only makes a quotation search. Lenders may interpret an abnormal number of credit application searches as indicating that you have applied for an unmanageable level of credit. They may even suspect fraud.
If companies have searched your credit report more than once in response to a single application, ask them to remove the extra searches.
6. Tell the truth
Don’t lie or fudge the truth on an application form. This amounts to a fraudulent application. Lenders find out and any inaccuracies on your form will tell against you and cause difficulties in future applications for credit.
7. Don’t let debts pile up
Pay your existing credit card bills and loan repayments on time each month – this will help to show potential lenders that you are in control and more likely to meet future repayments. Better still, try to pay off any outstanding amounts on credit card accounts completely. Talk to your lenders if you are having difficulties. You should be able to agree a schedule of payments you can afford. The agencies such as the Citizens’ Advice Bureau can help.
8. Avoid credit repair companies
These are not credit reference agencies and do not have the authority to amend your credit report. Don’t be tricked into paying for expensive services that you don’t need.
9. Your National Credit Score
You can order your National Credit Score from www.experian.co.uk. It is compiled using only the information in your credit report, so it won't be identical to the scores generated by lenders – but it will give you a good idea of how your credit report will influence their decision. It’s worth ordering your score before you make a new loan application, so you can see how well you are doing.
10. Keep on checking
Your credit report is not frozen in time. By following up on any significant changes notified to you by a monitoring service, you can ensure there are no nasty surprises the next time you approach a lender.
