Rebuilding your credit rating
July 1, 2015
Getting into any type of debt will adversely affect your credit rating, and if you enter a formal arrangement such as a Trust Deed or Debt Arrangement Scheme, it remains on your credit file for six years.
After this time you will need to start rebuilding your credit score. A range of options exist to help you regain the trust of lenders. If you have already been rejected by a credit card provider, however, you should stop applying for ‘standard’ cards and try one of the following alternatives.
Credit builder credit cards
Although the interest rate applied to this type of card is high, and your credit limit will be low, a credit builder credit card allows you to purchase small items such as petrol or food on a regular basis and pay the balance off each month.
In this way, you demonstrate your ability to operate a credit card without default, a fact which is noted with the credit reference agencies. The main feature of credit builder cards is their high interest rate – generally more than 30% APR – which has the potential to make your situation worse if you are not careful.
The high rate of interest is applied to these cards because of the risk the provider is taking in offering credit to someone with a poor history of repayment.
Pre-paid credit builder cards
There is a new type of pre-paid card whereby a card provider ‘loans’ you an amount equivalent to their monthly fee, multiplied by 12 months. You sign a loan agreement to repay this amount at £5 per month for example if the total on the card was £60, and the card provider notifies the credit reference agencies at the end of the term.
The downside of using these cards is the number of fees charged. These include set-up and monthly service fees, charges when you load the card with money, and also if you do not use the card for a while.
Take advantage of a range of other credit options
- Use a guarantor: if you are able to open a variety of different credit accounts, however small, this could speed up the process of rebuilding your rating. You may be able to take out a small loan with the help of a friend or family member acting as guarantor. If you default on the loan, the guarantor becomes liable for the full amount, so you need to make sure that they fully understand your situation.
- Make sure you are on the Electoral Register: having a confirmed address helps the identification process if you apply for credit or other borrowing, and offers a good impression to lenders. It is also worthwhile providing a landline telephone number on any applications or formal documentation.
- Are there any mistakes on your credit file?: You can check by ordering a copy from Experian, Equifax and CallCredit. Should you find an error, it can be rectified by contacting the agency and asking them to make a note on your report.
- Try a secured credit card: with this type of card, you provide collateral for your borrowing in the form of a cash payment to the provider. This is held by them in a separate account, to cover their perceived risk of offering you credit. If you default on payments, they are entitled to use the collateral to clear any outstanding amounts.
Scotland Debt Solutions can help you make the right decisions when it comes to rebuilding your credit rating. We operate from offices around Scotland.
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