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How to Improve Your Credit Rating  

Credit…. where do you start? Even understanding the basics can seem quite daunting, let alone how you go about managing and improving your own record. This is especially true if you’re new to the world of credit cards and loans.

Here, we’ll show you how in a simple & clear step by step manner how you can manage and improve your credit history. If you want to make yourself more appealing to future
banks & lenders then read on. You could soon gain access to credit & loan options which may be currently out of reach.

  The Basics

Seems like a good place to start, right?

What about the info-graphic?
I’m sure you will have noticed our large info-graphic at the top of page; this gives you a handy visualised guide that covers the main steps to tidying up your credit
history and then obtaining new credit. For those of you who want it, we’ll talk in more detail here and reference parts of the graphic throughout to make it clearer to understand.

How does credit history work?
Credit comes in many different forms, the list below shows the main forms available in the UK;

This list is certainly not exhaustive, but it gives you an idea of the various forms of credit which are available to us all. Having so many options means that credit
is virtually un-escapable in today’s world and it’s very tempting to get credit of some sort or another.

When ever you apply for a form of credit such as those listed above, a number of things usually happen. To start with, the lender or broker will check your credit rating with the agencies that
hold details of your previous credit (the main ones being Experian and Equifax). The agencies hold various details, including but not limited to;

• Credit applications you’ve made
• The balances of your outstanding credit
• Details of existing credit and closed credit accounts
• Any payments you’ve missed or defaulted on
• Any CCJs against your name
• Your current monthly repayment amounts
• Your current and previous addresses
• Whether you are on the electoral register

Lenders report this information back to the credit agencies on a regular basis (some report to both, others report to only one) so that a picture of your credit experience can be
created. When you then apply for new credit, the lender a) reports the fact you’ve made an application to the agency b) checks your previous credit experience to help them decide whether
you are a suitable person to lend money to. If you’ve had lots of missed payments in the past or you currently have a lot of credit for example, the lender may decide you are too
much of a risk to lend money to at this point in time.

As well as using the information retrieved from the credit agencies, lenders also use the data they’ve gathered from your credit application to determine whether you are suitable for
their product. For example they will almost certainly use the income figures you provide to work out whether you can afford to repay their loan on top of any other credit and commitments
you may currently hold. The lender may then also ask to see paper work such as wage slips or bank statements to back up the details you give on your application (although not always).

Your credit history also determines what sort of loan product is available to you. For example if you’ve got a clean and spotless credit history combined with a good income then most likely, you will be accepted for
any credit you apply for, at the best rates advertised. If your credit history isn’t up to scratch then a lender will either turn your application down or possibly offer you a loan at a higher rate of interest; the idea being
that charging you more offsets the extra risk they are taking on by lending the money.

It’s worth noting that lenders are obliged to show their representative APR when advertising their loan products, this is the rate that 51% or more of their customers
achieve when applying for a loan.

  Good & Bad Factors

There are numerous factors that increase the chances of you getting credit as well as numerous factors that can dramatically decrease the chances of getting credit. Let’s look at them;

Negative Factors

Now this doesn’t cover all reasons why you may get turned down for credit, but they are the main ones. Most lenders will perform a calculation to see if you can afford your current loan repayments,
let alone the repayments of any new borrowing you are applying for. This calculation is different from lender to lender, but in addition to debt repayments, it usually takes into account things such as essential living costs as well; if the lender
decides you can’t afford their loan, then responsibly, they aren’t allowed to lend you the money.

It often surprises people that not having existing credit or debt is a negative factor. The reason is simply because without having any credit on your credit file, the lender has nothing
to measure your ability to repay debt against. To a lender you are therefore; a risk.

Now let’s look at things which will help you succeed in a credit application.

Positive Factors

Looking at the above list, it’s obvious that a lot of positive factors are just opposites of the negative factors, but then this makes perfect sense.

Being on the electoral role is an absolute essential; this gives the lender reassurance that you plan on living in your property for some time and helps verify your identity; so if you stop making repayments, they
should be able to trace you without difficulty. Likewise having previous credit is a big thumbs up (as long as you have managed it responsibly). Other factors such as time in your current occupation
and time at your current residence gives the lender trust that you are in a stable position and therefore likely to repay your debts.

Applying for a guarantor loan with a suitable guarantor usually strengthens your application a great deal. Having someone vouch for your ability to repay the loan means that in many cases,
guarantor loans lenders don’t even need to perform a credit search on you before issuing the loan; if you have negative factors, this process can essentially wipe your slate clean!

Steps to Improve Your Credit Rating  

Here, as depicted in our info graphic; we’ll take a step by step approach to cleaning up your credit history, so that you can hopefully borrow at the best rates possible.

  First Steps

Here’s the initial steps you can take to help improve your credit history;

• Order your credit reports from the credit reference agencies; Experian and Equifax (there is usually a small one off fee for this)
• Review the reports and make sure the debts are all your own and are registered with your correct name and address. Report any problems to the agency.
• Make sure the report states you are on the electoral role. If you are not then register with your local council. This is essential.
• If you can afford to, pay off any existing balances or at least maintain payments. If you can’t afford the repayments on your credit, speak to the lender and work out a repayment plan you can afford.
• If you no longer use some of your credit cards then speak to the credit card company and cancel the cards (having too much spare credit on your record isn’t normally viewed as a good thing)

Problems you should report to the credit agencies include discrepancies such as;

• The credit isn’t your own (i.e. it belongs to someone else living with you or a previous occupant of the house)
• A debt you have settled is appearing with an outstanding balance
• If it says you are not on the electoral role, but you are
• If you have a bankruptcy order that is annulled, ensure the agencies are aware of this

You can also choose to notate on your file reasons for any period of poor repayment performance. You can request a ‘notice of correction’ that the agencies can add to your report, explaining the reasons behind
any of your missed payments or defaults over a specific time period.

  The Next Steps  

Rather ironically, the next steps to improving your credit standing, actually involves getting new credit OR using any existing credit you currently hold.

The principle behind this is that you have to show to future lenders that you are reliable at repaying credit. The way to go about this most effectively is to borrow some money
and then repay it in accordance with your credit agreement.

If you’ve currently got outstanding credit then great. Just ensure that you are repaying at least the minimum payment, on time and every month. If you can, repay more than the minimum
amount as this will show other lenders you can afford the debt.

If you’ve got no debt, but have empty credit card(s), then fantastic, you can spend on one each month and then pay off the amount
you borrowed in full on the next statement. Again, this shows you can have debt, but that you can also pay it back. As long as you can repay your debts on time and consistently then your credit record
will start looking much more appealing in only a few months.

If you haven’t got any existing credit to use, then things can get a bit trickier, especially if you’ve had a particularly bad credit past. Let’s look at the steps;

• Experian and Equifax have online tools so you can get a rough idea of your credit rating.
• If you are seeking credit, apply for a loan that suits your credit rating. When you apply for a loan a ‘credit search’ is left on your record which impacts your credit rating, so applying for too many fantastic deals when you’re unlikely to be accepted may make your credit record worse.
• Once you have found a suitable credit card or loan; apply!
• If successful, make sure you make repayments on time until the balance is paid
• If unsuccessful, look for a loan or credit card which is more suitable. Don’t make lots of applications at once as this can portray desperation to the lenders. Remember that applications for mobile phone contracts and hire purchase all count as credit applications.

Guarantor Loans are a great way to put this process into action. If you can find someone who is happy to vouch for you then the guarantor loan provider can usually disregard any bad credit you may have on your record. This means that you can get credit and start to repay it straight away; with each repayment helping to strengthen your credit record. You can find out more by reading our guarantor loans introduction.

  Application Tips  

Use these tips to help improve your chances of being accepted for a credit card or loan;

• If you have a home telephone number, put it on the application. The more contact numbers you can give, the better your chances.
• Be honest about your existing credit. Remember, they will look at your credit report and so can tell when you’re telling the truth.
• If your partner has a stronger financial position or better credit history. Consider making a joint application
• If you know someone who is happy to vouch for you, consider applying for a guarantor loan. This can improve your chances of being accepted dramatically whilst also improving your credit standing as you repay the loan.

Resources  

Here’s a list of resources to help you manage your existing credit better and improve your chances of getting credit in the future;

Credit improvement graphic visualised by Steven Stokes Graphic Design.