If you have had trouble accessing credit then you should look to improving your credit score. It sounds complicated but you can take some simple steps to take control of your finances and give yourself the ability to access better credit in the future. We've already talked about what a credit report checks, and for this post we'll focus on you can do to improve the report you receive.
Credit scoring exists so that lenders can work out whether you are a trustworthy person to lend to or not - sounds simple but the way they are worked out is automatic and does not take into account individual circumstances. This is the way of our modern banking system, and the way that most mainstream lenders operate, electronic scoring gives banks guidelines which makes decisions easier for them.
Check if you are on the electoral roll
The first step is to check if you are registered to vote - this verifies your status to credit referencing agencies which means they can access your financial history. Applying for credit if you are not on the electoral roll can be very difficult or even impossible. It also has the added, obvious, benefit of meaning you are able assert your right to vote in local and general elections.
It's easy to join the electoral roll, visit www.aboutmyvote.co.uk.
Never miss a direct debit
Missing utility or telephone direct debits leaves marks on your credit rating, and if this becomes a regular occurence it will quickly tarnish an otherwise exemplary credit report. When you sign up for direct debits the payment dates can get jumbled and you end up with payment dates scattered across the month, meaning they are hard to control. Check all your direct debits and rearrange them for the same or similar date each month, for example the 1st of the month, that way you will know when the majority of them will be paid. This means you'll avoid missing payments, bank charges and marks on your rating.
Correct errors on your credit profile
Get your credit report, Experian, Noddle or Call Credit offer credit reports for free or a small cost. Go through it with a fine toothed comb and make sure everyhing on there is correct. If you spot any accounts you are not faimliar with then make sure you fix it. It might be an account you didn't apply for, a dormant account or a default which you know to be cleared.
It takes a little bit of time but making sure you know the full picture, and being organised to correct errors will improve your ability to access credit in the long term.
Try to avoid payday loans
If you can, try to avoid taking out payday loans. These are listed separately to other debts on your file and can put lenders off, as it implies that you cannot manage your everyday finances well. Mortgage providers are particularly wary of those who have taken out payday loans in the past, so if you want to buy a house in the near future, try to stick to this rule.
Borrow and pay back regularly
Borrowing money is, however, seen as a good thing – but only if you pay it back in full and on time. Any credit which is payable over a longer amount of time (monthly payments over a year or more) will help you to build up a good financial reputation as long as you stick to the payment schedule. It shows the credit reference agencies, and other lenders, that you can make debt payments easily and will honour the contract you signed.
Make a plan to clear your debt
Looking at bills is scary, especially when you are having problems with money, but taking the step of looking through your finances is the only way to improve your situation. List what you owe and prioritise high interest debt such as credit cards, and make a plan based on your income and outgoings of how much you can pay off each month. It might be small amounts at first but having a plan makes it easier to stick to things. Use a simple spreadsheet or a notebook to record your progress.
What do lenders want to see?
Lenders like to see evidence that you have borrowed money before and that you can pay it back in full and on time. It shows them that you can handle your finances properly and you have the ability to budget. Those who borrow and are late making payments, or who don’t pay the money back at all, will soon find that they can’t borrow money from many places because their past behaviour is evidenced in their file.
What if my bank won't lend to me?
Don't panic, this does not mean you have nowhere to turn. There are now plenty of other places to source credit. The internet has opened up a whole world of finance to those who would otherwise struggle. It’s important to shop around and ensure that you’re borrowing from a trusted and respectable lender.
It’s also important to borrow the right kind of credit. For instance, payday loans may not help your credit rating, even if you pay them back in full and on time. For those with a poor or non-existent credit history, a guarantor loan or 6-12 month loan aimed at those with a less-than-perfect credit rating could be the answer. As you pay the money back over time, your credit rating should improve.
What if I've been blacklisted?
Being put on a credit ‘blacklist’ is a common misconception that many people have. There is no such thing as a blacklist and just because you’ve been refused credit by one lender doesn’t mean that you’ll be refused by another. Some people believe that you can be put on a credit blacklist simply by living at the same address as someone who was once bankrupt, or who has a particularly bad credit file. Anyone who lives at your address, either with you or before you moved in, cannot affect your credit file unless they hold joint finances with you.
These tips can take a 3-6 months to make a difference to your rating, as it is all about proving you can manage your finances long term, but once the changes start to kick in you'll feel on top of your money. The first two are really easy and you can do them straight away, and the others are bigger jobs but have a greater effect.
© 2015 Match the Cash Ltd trading as
Guarantormyloan.co.uk. We are authorised and regulated by the Financial Conduct Authority. Interim Licence 661304
Registered in England as Match The Cash Ltd. Registration Number: ZA055459 (ICO)
Registered Office: MATCH THE CASH LIMITED ACRE HOUSE, 11/15 WILLIAM ROAD, LONDON, UNITED KINGDOM, NW1 3ER. Company No. 08667447