Most financial experts say that it’s important to maintain a good credit rating, even if you are not planning to increase your borrowings in the near future. At some point in the future you may well want to do so; at that point, if your credit rating is poor, or simply inaccurate or out-of-date, it could cause you problems. At the very least it could cause you delays.
As I have mentioned before, I subscribe to “Moneywise” magazine and I find it a useful resource. It’s also a quick read, which is very important to many people. I wish I had known about it back in the late ‘90s when I faced my own debt problems. Being in debt is stressful and that’s why very often advice needs to be clear and succinct.
This month’s issue of the magazine contains a helpful article on the very question of boosting your credit rating. The article is not available yet on the Moneywise website, so you’ll have to buy the magazine to read the full piece. (March 2012, page 44; good value, I’d say, at £3.95)
- Get hold of your credit report from one of the three main credit reporting agencies in the UK: Experian, Call Credit and Equifax. They are required by law to provide a basic one for £2.
- Look for mistakes; lenders often misreport and still show debts as being unsatisfied, even though they have been paid in full.
- Check for old addresses: are your old addresses in there? Are they spelled correctly? You need evidence of your past payment performance.
- Check for hidden debts: balances that had built up of which you were unaware. (e.g. forgotten direct debits on unused accounts)
- Show your stability. Long relationship with one bank? Landline phone? On electoral roll?
- Cancel unused credit cards, debts, accounts. (I myself need to look at this; I have several cards I never use)
- Get a credit card, if you haven’t got one. This seems illogical but it’s a good strategy. Manage it sensibly; that provides evidence of your “probity”.
- Be careful who you link your finances to. Applying for joint credit will link your credit reports, of course.
- Don’t make lots of applications for credit at the same time.
- The Golden Rule: don’t miss payments. If you can’t avoid missing one, contact the lender / credit card company in advance; don’t just default.
CREDIT SCORING ADVICE FROM A CREDIT RATING AGENCY
Way back in 2004 I found a great online resource on this subject from Equifax. That’s really “from the horse’s mouth”, because they are one of the three UK companies mentioned above, who do the credit reporting. The information is still valid and it’s still on Equifax’s website.
The title was “Rebuilding Damaged Credit”. Some of the advice overlaps with that of “Moneywise”, some not. Here’s a summary of it:
Open new accounts … and pay them off
Being able to repay a variety of new accounts helps rebuild your credit. Opening and paying off as many different kinds of accounts as you can is better than adding more debt to an existing credit card.
Rebuilding your credit can be similar to starting over from scratch; starting small may be the easiest option. Credit cards from department stores can be useful. (Warning: if you don’t pay the full balance every month, their interest rates tend to be among the highest)
Consider asking for help
If you can’t qualify on your own, ask a friend or family member to co-sign for a small loan or credit card.
Consider a secured credit card
They are guaranteed by a deposit that you make with the credit grantor; they offer the purchasing power of a major credit card. Make sure the grantor reports payment histories to a credit reference agency, so you’re building your positive payment history.
Use new accounts in moderation
And make payments that are more than the minimum.
Keep balances low
Avoid carrying a balance that is more than 30% of your credit limit, because creditors may view that as excessive debt.
The bottom line
It’ll take time for your new credit history to gain momentum, so be patient. You’re demonstrating your financial reliability; that’s why opening and paying down accounts may make it a little easier to get more credit in the future if you need it.
WANT TO KNOW MORE?
For the resources mentioned above:
For the Equifax resource in full: http://www.equifax.co.uk/Products/learning-centre/rebuilding_damaged_credit.html
For a short “Moneywise” video on improving credit rating: http://www.moneywise.co.uk/cards-loans/credit-cards/how-to-improve-your-credit-record-tv
For the article: “Ten ways to boost your credit rating”. Available in “Moneywise”, March 2012, page 46.
For info and links re my e-book “Back to the Black: how to become debt-free and stay that way”, click HERE.
It’ll also be available in paperback from Amazon in a couple of weeks; I have the proof copy in my hand right now.