10 Tips To Improve Your Credit
At some point we all need to borrow money, this may be in the form of a mortgage in order to buy a house, a credit card for that much needed holiday or a personal loan to finance a new car.
Each time we apply for credit the lender will run a check on our credit history, a process known as credit scoring, to determine whether or not we are a suitable candidate for the loan.
There are three credit reference agencies which hold information on every financially active adult living in the UK. These agencies are: Experian, Equifax and CallCredit.
Our credit files contain personal information such as our name, date of birth, current and previous addresses, partner’s details and any information publicly available from the electoral roll, court judgements and details of bankruptcies. Details of our current and previous financial accounts, credit applications both approved and denied, how much credit we have available and what we have outstanding collectively form what is known as our credit and financial history.
Those with good credit histories are more than likely to score high and be granted credit upon application. Those unfortunate enough to have a low scoring credit history may be offered credit at higher interest rates or quite simply refused credit in the first instance.
As a result of the credit crunch, lenders are significantly tightening their lending criteria in order to reduce the number of ‘high risk’ customers they take on. Although it is becoming increasingly difficult to be granted credit, there are a few steps we can take to avoid the frustration and inconvenience of being turned down.
Listed below are 10 ways which could help you improve your financial standing:
- Obtain a copy of your credit report and check it for regularly for any errors:Under the Consumer Credit Act 1974 you have a right to see a copy of your file. All 3 credit reference agencies will print out a copy of the personal information contained in your credit file for a charge of £2. Check your file for any errors which could be present as a result of fraud. Check that any completed payments are noted as closed accounts and check for anything that looks suspicious.
- Make sure you are on the electoral roll:Information about you contained on the electoral roll is obtained by credit reference agencies. It is important that you are listed on the electoral roll otherwise you will appear either to not exist or to be starting fresh with no credit record. Register with your council as soon as you move house. Since credit reference agencies update their details on a monthly basis, registering as soon as possible will only improve your credit score.
- Check that you do have a credit record:If you have never borrowed money it may go against you. Credit companies prefer to see how you handle money and how you manage repayments. It is a good idea to open an account of some kind such as a basic bank account in order to establish a credit history.
- Check your bank statements:By regularly checking your bank statements you can keep track of any missed payments. It will also help you detect any suspicious transactions that may be fraudulent and ultimately affect your credit rating.
- Set up standing orders and direct debits:By setting up standing orders and direct debits for payment of monthly bills it will prevent any missed payments that may escape your memory. Some companies will offer discounts on your bill for this method of payment.
- Cancel any credit card accounts you no longer use as well as any extended overdraft facilities:When you apply for credit, lenders will check how much credit you already have available to you. If you are applying for a new credit card, because it offers a better rate, remember to inform the old credit card company that you wish to close the account. The more credit card accounts you have can go against you and put you in the high risk category.
- Do not have multiple credit applications at any one given time:Remember that each time you apply for credit, the company will check your credit record and leave a footprint. Too many footprints can be interpreted as a sign you are at risk of running into debt.
- If possible pay off any loans or credit arrangements before the deadline date:Early settlement of a loan or credit arrangement is taken as a positive sign by financial organisations and will make them more inclined to offer facilities in the future.
- Make sure any arrears are up-to-date with a notice of correction included explaining the situation:Any evidence of missed or late payments present in your file will work against you or result in much higher interest rates being offered should your credit application be approved. If you have missed any payments or fallen behind, make sure you include a note explaining the reason why. It could make all the difference when it comes to obtaining future credit.
- Check that any accounts you have settled are clearly shown on your credit file:Any past financial problems that have since been settled must be noted on your credit record. In the case of CCJ’s you may need to obtain a Certificate of Satisfaction from the county court which you must then send off to the credit reference agency. Your file will then be brought up to date and all settlements duly noted. This in turn will improve your credit rating and work in your favour.
Published on March 7, 2008
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