If you need to improve your credit rating, it can be hard to know where to start. It can seem impossible but with a bit of hard work and dedication it can be done!
I want to start this post by saying I’m not a credit expert. While I don’t have a background in finance, I can talk from personal experience. I went from one of the worst credit ratings you can have to one of the best in just over a year. I worked hard to get where I am now, and I want to share my experience and things I learnt along the way.
When I was young and foolish, I racked up a lot of debt I couldn’t pay off. I missed payments, went over my limits and completely destroyed my credit rating.
I was turned down for a bank account and one of the worst rate credit cards going. One year later my credit rating was excellent and I was approved for one of the best rate mortgages on the UK market. So, I’m going to speak from personal experience and tell you what I found on my journey to improving my credit rating.
Here are my top 10 tips for improving your credit rating:
Check Your Credit Report
The first thing you need to do is check your credit report. Before you can start to improve it, you need to know what’s actually on it! Both Experian and Equifax offer free trials and you should check your full report, not just your credit score. If there are any errors or things you think are unfair on your report, you are entitled to challenge them.
If there’s an error on your file, the first thing to do is contact the lender and ask them to fix or remove it. This can take a while, and you will need to prove why it’s wrong. It is rare to get genuine errors on your file but it does happen. It happened to my partner and while it took us several months to get corrected, his credit rating went from poor to excellent almost overnight.
If you don’t actually have an error but feel the report doesn’t accurately reflect your situation, you can add a Notice of Correction. For example, if you were made redundant and that’s why you missed a few payments, you can add a note to explain this. Lenders may take this into consideration when deciding whether or not to lend to you.
Get On The Electoral Roll
Making sure you’re registered to vote is a quick and easy way to start improving your credit rating. Lenders use the electoral roll to verify your identity and make sure the details you provide to them are correct. Therefore it’s important to be registered. You can do this easily online.
NEVER Use A Payday Loan
Payday loans show on your credit file and some lenders view them as a sign you can’t manage money. A few years ago it was advertised that people with bad credit could take out a payday loan and make all their repayments on time to improve their credit rating. It’s now known that this can actually have the opposite effect. Some mortgage lenders won’t touch you if you’ve EVER had a payday loan. Avoid them at all costs, especially if you’re thinking of applying for a mortgage any time soon.
Don’t Make New Credit Applications
If you apply for credit and get turned down, this can leave a bad mark on your file. Even if you are accepted, too many applications in a short space of time doesn’t look good. It makes it appear that you can’t manage your finances and are relying on credit to keep you going. Try to space out applications. And if you’ve got an important application coming up such as a mortgage – try not to make any other credit applications for a couple of months beforehand.
Use Your Credit Wisely
While having lots of credit can look bad, having no credit can also have a negative impact. Lenders look at your credit report to see how you’ve managed your credit in the past. They want to see if you make payments on time and pay back what you owe. If you’ve never had any credit (loans, credit cards, mortgages etc) they’ve got no evidence that you’re credit worthy! There are lots of credit builder cards on the market at the moment. Applying blindly and getting turned down can negatively impact you. Luckily, Money Saving Expert have a great tool that allows you to check which cards you’ll be approved for before you apply.
Set Up Direct Debits
Go through your outgoings and set up Direct Debits for all your bills, loans, credit cards and even your phone bill. This will ensure you never miss a payment. Even one missed payment can affect your credit rating. Missing a few in a row can really damage your rating and take months to repair.
Get Out Of Your Overdraft
While being in your overdraft doesn’t necessarily affect your credit rating, it does mean you’re at risk of running out of money. If you’re constantly in your overdraft, you’re not managing your money well. Going over your limit and into an unauthorised overdraft can be a bad sign to lenders. Try to pay it off if you can. If you’re near your limit and know you’re going to go over it for a genuine reason, contact your bank and ask for a temporary limit increase.
When my maternity leave ended, my employer was supposed to pay me my outstanding holiday pay for the next 4 weeks. They messed up payroll and I was left without an income but still had bills to pay. I contacted my bank who arranged a temporary increase on my overdraft until my pay was corrected. It didn’t affect my credit rating, all my bills were paid on time and I paid the debt off as soon as I was paid. It’s definitely something to think about!
Set A Budget (And Stick To It)
If you’re constantly living for payday, it’s easy to overspend and run out of money. You then run the risk of missing payments, racking up debt or worse, applying for Payday Loans! Setting yourself a budget and sticking to it can have a massive impact on your financial situtauon. You need to make sure you pay all your bills first before allowing yourself money for treats.
Write down all your outgoings, your income and work out a budget. See where you can make cutbacks – get rid of any unnecessary spending such as magazine subscriptions, unused gym memberships or even that daily coffee on the way to work. It’s amazing how many people are spending money on things they don’t need without even realising it!
Pay Off Your Debts
One of the things that affects your credit score is how much of your available credit you’re using. If you’ve got a credit card with a £1000 limit and you’re using all or most of it, this isn’t a good sign to lenders. The more you pay off, the higher you’ll see your credit rating climbing. If you’re struggling with money, it can be hard to pay off debt. But even paying slightly more than the minimum each month will slowly help. Consider other ways to earn extra cash such as Mystery Shopping, Online Surveys, or Making Money From Home.
Cut Your Old Financial Ties
Your credit report shows people you are financially linked to. This includes people you have had financial relationships with in the past, such as joint bank accounts or mortgages. Make sure you aren’t linked to old partners, housemates or friends. If they have a bad credit rating this can bring yours down too. Occasionally you can even be incorrectly linked to people you don’t even know, so this is another reason to check your full credit report!