If you are currently working on reducing the amount of debt you have, improving your credit score may not be at the top of your agenda. However even if seeking out further credit is not something you want to do in the foreseeable future, it is still important to ensure your credit record is as clean as possible. This is because your credit rating can impact much more than just your ability to take out loans and credit cards. Applying for a mobile phone contract, paying your car insurance in monthly instalments, and even being able to switch your utility bills from a pre-payment meter is all dependent on your credit score.
Poor credit does not have to haunt you forever, particularly if you take positive action to improve your situation. Here are 10 actions you can implement now to improve your credit record for the future.
Obtain a copy of your credit report – Giving your credit report the once-over is vital if you are looking to improve your credit rating. You can obtain your report for free and check all is correct. If you notice anything on there that shouldn’t be you can challenge incorrect information and have this removed from your report. Lenders use three main credit agencies: Experian, Equifax and CallCredit. It is a good idea to obtain your report from all three companies, as each will hold slightly different information and analyse it in different ways.
Do not miss making payments on current debt – This may seem obvious, but keeping on top of your current debt is the number one way to improve your credit report. You should consider setting up direct debits to ensure your minimum payments are automatically met. It is then advisable to make manual payments on top of this to clear the balance sooner.
Regularly check your credit report – Once you are sure that your credit report is accurate, you should endeavour to keep it this way. You can do this by getting into the habit of checking it once or twice a year. This helps to ensure that the information on your report remains accurate, and also provides protection against identity fraud. Checking regularly can also show you whether your credit rating is heading in the right direction over time.
Close unused credit cards –Lenders consider not only the amount of credit you are actually using, but also the amount of credit you have access to. This is known as ‘available credit’. If you have a number of credit cards with a zero balance you should consider closing these down.
Beware payday lenders and using a credit card to withdraw money – A reliance on payday loans and withdrawing money from credit cards can mark you out as someone with poor money management. This type of behaviour is a huge red flag to lenders. Not to mention this type of borrowing is traditionally one of the more expensive ways of obtaining credit, so knocking this on the head can help you financially too.
Attach a ‘notice of correction’ to your report – If there are legitimate reasons behind a period of bad credit, such as unemployment or ill health for example, you can attach a note to your report explaining this. This can be particularly effective if the period of bad credit was several years ago and you can show that these problems are now behind you and you are now using credit in a more controlled way.
Check you are on the electoral roll – This helps bank verify your identity and helps weed out fraudulent applications. This is one of the easiest ways of boosting your credit score.
Limit credit searches – Every time a credit search is carried out this leaves a footprint on your credit report which can be seen by other lenders. A large amount of these footprints over a short period of time rings alarm bells for lenders, as it can appear that you are desperate for credit. If you find yourself being rejected for credit, it is better to ask the lender why you were rejected rather than immediately applying somewhere else thereby having another footprint added to your file.
Sever old financial connections –If you had any joint financial products with ex partners or ex housemates, you may find that you are still connected to that person on your credit report. If your finances are no longer linked, you can get this removed by writing to the credit reference agency. This is particularly important if they have bad credit, as this is likely to be detrimental to your rating.
Show stability – Lenders like to see stability in their prospective customers. Staying at one address for a significant period of time rather than moving around, remaining with the same bank and even keeping the same job for a length of time also helps. If you can provide a landline number as opposed to a mobile on any applications, this is also looked upon favourably.
If you’ve lost your job, state benefits and tax credits can provide vital financial support to see you through this tough time and help you avoid taking on too much debt while you look for more work...
If you live in Scotland and have been forced to work from home during the Covid-19 pandemic, you may be entitled to claim tax relief on your increased costs.
Our Scottish based team can help advise you on your debt problems.