Here are just 10 tips on how to improve your credit rating
1) Check your credit file
The three main credit reference agencies, Experian, Equifax and Callcredit, hold information on every financially active adult in the UK. If you are intending to apply for a loan, it is important to get a copy of your credit file first to check that there no mistakes on your file. You can obtain a printout of your file for a fee of only £2.
2) Ensure that you are on the electoral roll
Many companies use the electoral roll to verify identity to prevent identity fraud, so registering is essential. You will receive a reduced credit score if you cannot be found on the electoral roll. Credit reference agencies update their details from the electoral roll every month, so registering will improve your score quickly.
3) Notices of correction
It is important to check your credit file annually, ideally more, to ensure that all information is correct. If you notice any errors or disagree with anything, you can request the credit agency to flag it as “disputed”. Agencies suggest adding a notice of correction to the file (a 200-word statement explaining an entry), e.g. reason for a late bill payment. Lenders are legally obliged to read these statements, but do not add too many, as this could put off a lender.
4) Apply for a credit card
Don’t avoid debt completely – lenders prefer to give mortgages to people who show that they have borrowed money and then repayed it, as opposed to those who have never borrowed before. If you have no history of borrowing, take out a cashback or reward credit card for groceries or petrol, so that you can use it and pay it back in full regularly.
5) Open a joint account
If you have not borrowed in the past, you could open a joint account with an adult with a good credit score to help boost your credit rating. This is a decision which should be considered carefully, as you will be linked to this person in the future and if he/she receives a poor credit score in the future, it could lower your rating.
6) Be careful what you apply for
A “footprint” is left every time you apply for credit. Too many will mean that certain lenders will reject you.
7) Pay all bills by direct debit
Forgetting to pay a bill on time can ruin your credit rating and your chance of getting a mortgage, and any late payments will remain on your credit file for at least three years. Arrange to pay all credit card or bill payments by direct debit to prevent this from happening.
8) Close unused accounts
Lenders will take into account the total amount of credit avaiable to an individual, so if you have an account that you do not use, it is important to close it. Ensure that you have not missed a payment before closing the account as that missd payment will remain on your file for a further six years.
9) Notify credit agencies of any change in circumstances
Any change, such as getting divorced or becoming unemployed, should be declared to a credit reference agency. You could then place a notice on your file explaining your situation and how repayments might be affected.
10) Clear debt ahead of schedule
Pay off loans early and repay your credit cards in full where possible. This show lenders that you can afford your borrowings and have the right attitude to borrowing.