1: Understand what your credit rating is and how it affects you!
Your credit rating (or credit score) is a tool which lenders use in order to determine whether you have met the criteria to be given a particular credit card, loan, mortgage or service. it is also used to find out the amount in which you can be loaned, or even how much interest you should be charged.
BEWARE! Don’t get confused into thinking that there is a credit rating blacklist within the UK. Although you may hear horror stories of people being repeatedly declined credit that does not mean that they have been blacklisted and can never get credit. Even if one lender has rejected you credit, it may still be possible to gain credit through other sources.
It is therefore important to improve your credit rating to improve your chances of getting the best deal available!
2: Know what sort of things affect your credit score
Although there is no universal tool which lenders use to determine credit rating, there are a multitude of things which can negatively affect your credit score, these include:
- Your history of credit account payments
- The information included in your credit report (Such as the amount of your current available credit that you’re using, or the amount of your total debts).
- High levels of current debt- credit loaners likely to be less comfortable lending money when you already have a high amount of existing debt.
- Failing to pay or being late in paying any mortgage, credit card payments, utility bills (such as gas and electric) or personal loan bills will negatively affect your credit rating for up to 6 years.
- Having more credit available than you currently use. For instance, if you have numerous credit accounts open but never use any of them, lenders will be able to see this and make judgements on it.
- Not staying in the same home! It may sound unfair but if you move home regularly lenders are going to be less comfortable giving credit if you haven’t resided in the same address for a decent length of time.
3: Building up that credit rating from the ground up
Using a credit-building prepaid card can be an easy way to begin improving your credit rating straight away. These cards work by having you sign a credit agreement in which you are “loaned” a small amount of money (Less than £100) and you agree to pay back this loan at a monthly rate of £5 a month until the loan is repaired. At the end of the payment, assuming you haven’t missed any of your payments, this consistent repayment is recorded on your credit report.
However, there are some down sides with using prepaid credit building cards. The biggest of these being FEES! You might pay around £5 to purchase the card in the first place, 2.5% on everything you spend with the card and a small extra fee (A few pound) to top up your card.
Furthermore, prepaid credit building cards are not accepted everywhere, and you may not be able to use them to pay for things such as petrol at the pump or at some online shops. Make sure you research the prepaid card you choose to get and understand the rules relating to your card; and try to get one with the lowest fees!
4: Pay for what you already pay for, using credit!
Using a credit card to pay for your regular expenses, such as utility bills or other monthly expenditure can be a great way to improve your credit rating with very little extra effort. If the amount that you pay is pretty much static every single payment, you can pay for those expenses on your credit card while setting up a direct debit from your main bank account to repay everything on your credit card. Say you spend £100 a month on certain utility bills. You pay for these monthly using a direct debit with your credit card. You then set up a direct debit from your main bank account to pay off all of your credit card bills and voila! Extra credit rating payments every month for spending money you already were spending.
5: Reduce your debts with savings if you can
Before applying for any form of credit, it is important to try to reduce the total amount of outstanding debt you already have in your name. This is because lenders will use this information to determine the level of your “credibility”. Minimising your total debt by using any available savings before applying for a large amount of credit (such as a mortgage) can make a big difference with the credit deal that you are granted. The less total borrowing that you have in proportion the total value of your house, the better the deal will be that you are offered.
Other quick tips
REGISTER TO VOTE!- You’re unlikely to get any credit at all if you aren’t registered to vote in the electoral roll. Apply immediately to avoid any potential delays. All you’ll need to do to register online is answer a number of personal questions, the local electoral borough you need to register with and your national insurance number.
Avoid payday loans- They are not only horrendously expensive, but also some mortgage lenders have openly stated that they may reject those who have a current payday loan, due to its reflection of poor money management skills.
If you are rejected credit, find out why!- If you’re rejected check your files are correct immediately. You will be told by which credit agency was used by the lender so that you can contact those to check for any discrepancies in their information.
Don’t let anyone you live with or your partner’s score affect your score- If you’re financially linked to someone, their files may also be accessed when you apply for personal credit. Even if it’s just a joint bills account! Therefore, try to keep your finances completely separate from anyone that you know currently has a poor credit history, so that yours isn’t negatively affected.