How to improve your credit rating

June 7, 2016 by Joe Newman | Guides | Buy a used car

If you’re looking to pay monthly, ensuring you’re completely in control of your credit rating is vital in ensuring you’re getting the best possible deal. As a simple rule of thumb, the worse your rating, the more difficult and expensive it is to borrow. Here are some great tips to help you increase your credit scores and lower your monthly repayments.

Before reading this, you might find it useful to read our finance jargon buster.

Bust the Jargon

1) Register to vote

This is fundamental to getting credit as it’s usually a requirement for most lenders. Being on the electoral roll allows credit reference agencies to find proof of address and ID quickly. What’s more, it’s easy, simply log-on to the government site and apply.

If you’re a foreign national and aren’t able, or currently eligible to register, sending the three major credit reference agencies substantive proof of ID and your address is a great way to verify that you are who you say you are. These agencies are Experian, Equifax and Callcredit.

2) Never make later payment

This is probably the most obvious way of preventing damage to your credit score. Late payments are a big deal. They'll have a big impact on a lender's trust in your ability to repay on time.

However, worse than a late payment is a non-payment. If a default is registered on your credit file, this will seriously impact your ability to borrow money. Or, at least, your ability to borrow money at a reasonable rate of interest. And, although defaults are, by law, removed from your credit file after 6 years, the fact remains the quickest way of clearing your file is simply to repay the money.

3) Ensure you’re not financially linked to anyone with a bad score

If you share a bank account, a mortgage or other financial product with someone who has a poor credit score, this has the potential to have an adverse impact on your own credit file. If you find this to be the case, arranging your finances so you're officially separated from one and other is likely to make it easier to be accepted for finance. 

4) Minimise ‘hard searches' on your credit file

The more applications you put in for credit, the more likely you are to have ‘hard searches’ against your credit file. These are detailed assessments by credit reference agencies that look at your history of borrowing. If you’re rejected, this will leave a permanent negative on your credit file - this reduces your credit score and will make it more difficult to borrow money. 

The other problem with putting in too many applications for credit is that the more applications you put in, the more desperate you appear for credit. Money Saving Expert suggests you look at applications for credit like spending money. You have a finite amount before it adversely affects your credit score, so use them wisely.

5) Take out (and use) a credit card

Your credit score isn’t just about not being in debt that you’re unable to pay back. It’s also about proving to a lender that you’re going to be a source of profit. For a lender to make a profit, you need to borrow in the first place. If you’ve got a bad credit score taking out a credit card and keeping up with the repayment means you can significantly improve your score over the course of the year.

However, you should also consider this. If you take out a credit card and don’t end up borrowing any money, this could actually have an adverse impact on your ability to borrow.

6) Avoid cash withdrawal with credit cards

Unless you’ve got a specialist credit card, the cost of taking money out of cash machine with it is astronomically high. Let’s be honest, there’s usually no real need to either. If you do, it’s likely to affect your credit rating. Lenders will consider it poor personal financial planning, which could detract from your credit score.

7) Pay off debts with savings

In many cases, the more debt you have, the less likely you are to be able to obtain credit. It’s always tempting to keep hold of your savings, even when you’re in debt. However, if you’re looking to improve your credit score quickly, it’s worth using whatever savings you have to pay off as much of your outstanding debt as possible. Focus on the short-term, high-interest debts first and then go from there.

8) Cancel those unused cards

Everybody has been there. You’re in a department store and they tell you of all of these exceptional benefits of getting a store card. However, most of the time, if you give in and say yes, they remain unused. Unused cards, whether credit or store cards, are bad for your credit file because they indicate to lenders that you’re not willing to borrow. If you use them wisely, they can be a great tool to boost your credit rating, if you don’t use them at all, cancel them.

9) Stick with a 'soft search' whenever you have the choice

When you’re applying for credit to cover the cost of less important items, you should ask the lender or the broker to simply perform a ‘soft search’. This doesn’t stay on your credit file in the same way as a ‘credit’ or ‘hard search’.

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