Six ways to improve your credit score. These days, it can be difficult to borrow if you don't have an excellent credit rating - but don't despair if you have a chequered past. Victoria Bischoff explains six steps that should help clean up your credit history...
During the boom years, it seemed like anyone who could sign their name had a decent chance of getting credit when they needed it.
However, since the credit crunch lenders have seriously tightened their belts. Nowadays, being accepted for market leading financial products is no easy feat - especially if you have a blemished borrowing past.
Thanks to the effects of the financial crisis, banks and credit card providers are more risk averse than they were a few years ago. They're concerned about keeping hold of as much cash as possible, and are reluctant to lend to anyone they fear will not repay their debts.
So, what should you do if you suspect your credit score is less than squeaky clean?
1. Check your credit report
Before you can start to clean up your credit score, you need to know what you're dealing with.
Therefore, your first step should be to bite the bullet and apply for a copy of your credit file from one of the three referencing agencies in the UK: Experian, Equifax and Callcredit.
If you're savvy you can bag this service for free by signing up for a 30 day trial with Credit Expert (under Experian) - just remember to cancel your direct debit before the offer expires.
Once you have your credit report, check that the data is accurate, ensure your debts are listed correctly and query any activity you don't recognise. If you do spot a mistake, write to the agency immediately and request for it to be changed.
If the agency refuses to amend your file, you're entitled to add a 200 word 'notice of correction' to it. This allows you to comment on any aspect of your credit history which you feel needs further explanation.
2. Cancel unused credit cards
When a lender checks your file, they look at how much credit is already available to you.
If you have access to a lot of credit, even if you don't use it, you may be viewed as a high risk customer.
Therefore, it's best to cut up and cancel any credit or store cards you no longer use.
3. Dissociate yourself from ex partners
Being financially linked to someone with a poor credit history could damage your own credit rating.
If you share a joint account or mortgage with a partner, and you split up, it's important you contact the credit referencing agencies as soon as possible to ask for a 'notice of disassociation.'
4. Show evidence of stability
Financial institutions like stability; they prefer to lend to people they can track.
Ensuring you're on the electoral role is a simple way to show lenders that you are who you say you are, and staying with the same bank or employer for a solid length of time will also show lenders you are reliable.
Using a landline, rather than mobile, phone number on application forms will also help with security checks.
5. Time applications carefully
Each time a lender searches your credit file to assess whether they want to let you borrow, they'll leave a telltale 'footprint' behind.
If too many of these are visible on your credit report, lenders are likely to assume you are already financially overstretched.
Therefore, make sure you always space out your applications and don't make a formal application for credit if you think it is unlikely to be accepted.
6. Build a credit history
If you've never borrowed money before, it's likely you'll have virtually no credit history. This means lenders will find it difficult to predict how you will handle debt, and as a result you may find it difficult to get a market leading product.
This can trigger a catch 22 situation. If you can't get credit in the first place, how can you build up a credit history or prove you are a responsible borrower?
If you're in this situation, a credit building card could help you get your foot on the first rung of the credit ladder.
Here are three cards you could choose from:
During the boom years, it seemed like anyone who could sign their name had a decent chance of getting credit when they needed it.
However, since the credit crunch lenders have seriously tightened their belts. Nowadays, being accepted for market leading financial products is no easy feat - especially if you have a blemished borrowing past.
Thanks to the effects of the financial crisis, banks and credit card providers are more risk averse than they were a few years ago. They're concerned about keeping hold of as much cash as possible, and are reluctant to lend to anyone they fear will not repay their debts.
So, what should you do if you suspect your credit score is less than squeaky clean?
1. Check your credit report
Before you can start to clean up your credit score, you need to know what you're dealing with.
Therefore, your first step should be to bite the bullet and apply for a copy of your credit file from one of the three referencing agencies in the UK: Experian, Equifax and Callcredit.
If you're savvy you can bag this service for free by signing up for a 30 day trial with Credit Expert (under Experian) - just remember to cancel your direct debit before the offer expires.
Once you have your credit report, check that the data is accurate, ensure your debts are listed correctly and query any activity you don't recognise. If you do spot a mistake, write to the agency immediately and request for it to be changed.
If the agency refuses to amend your file, you're entitled to add a 200 word 'notice of correction' to it. This allows you to comment on any aspect of your credit history which you feel needs further explanation.
2. Cancel unused credit cards
When a lender checks your file, they look at how much credit is already available to you.
If you have access to a lot of credit, even if you don't use it, you may be viewed as a high risk customer.
Therefore, it's best to cut up and cancel any credit or store cards you no longer use.
3. Dissociate yourself from ex partners
Being financially linked to someone with a poor credit history could damage your own credit rating.
If you share a joint account or mortgage with a partner, and you split up, it's important you contact the credit referencing agencies as soon as possible to ask for a 'notice of disassociation.'
4. Show evidence of stability
Financial institutions like stability; they prefer to lend to people they can track.
Ensuring you're on the electoral role is a simple way to show lenders that you are who you say you are, and staying with the same bank or employer for a solid length of time will also show lenders you are reliable.
Using a landline, rather than mobile, phone number on application forms will also help with security checks.
5. Time applications carefully
Each time a lender searches your credit file to assess whether they want to let you borrow, they'll leave a telltale 'footprint' behind.
If too many of these are visible on your credit report, lenders are likely to assume you are already financially overstretched.
Therefore, make sure you always space out your applications and don't make a formal application for credit if you think it is unlikely to be accepted.
6. Build a credit history
If you've never borrowed money before, it's likely you'll have virtually no credit history. This means lenders will find it difficult to predict how you will handle debt, and as a result you may find it difficult to get a market leading product.
This can trigger a catch 22 situation. If you can't get credit in the first place, how can you build up a credit history or prove you are a responsible borrower?
If you're in this situation, a credit building card could help you get your foot on the first rung of the credit ladder.
Here are three cards you could choose from:
| Provider | Typical APR | Credit limit |
| Barclaycard Initial Credit Card | 27.9% | £2,000 |
| Capital One Classic Visa Card | 34.9% | £2,500 |
| Vanquis Visa Card | 39.9% | £1,000 |
As you can see, credit building cards come with very high interest rates. This is because they are aimed at 'high risk' customers.
The key to using these cards successfully is to avoid paying interest altogether. This means always clearing your balance in full at the end of each month - and never using them to make purchases you can't afford to pay for straight away.
If you use a credit builder card, it's also crucial you never miss a payment or exceed your credit limit. Not only will this damage your credit rating further; you're likely to be hit with a nasty fine.
It's a good idea to set up a direct debit to repay your balance in full each month, to ensure you make your payments on time.
Although these cards may not offer the most attractive deals on the market, they should open the door to better deals in the future. ( mailcompare.mailonline.co.uk )
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