Through building up a good credit rating, you will opening up the door to a whole range of financial possibilities. Whether you’re looking for a credit card, loan, mortgage etc, you should have no problem qualifying if you have a good credit history. On the flip-side, these finance options are likely to be less available to those that have a bad credit rating.

This article offers a number of steps that can be employed to improve your credit rating, whether it be damaged or simply non existent.

Many people with successful jobs earning high salarys and with little or no debts often have bad credit ratings

A bad credit rating is usually given as a result of late payment for bills such as credit card or utility bills; a Default or County Court Judgement (CCJ) put against your name.

Depending on how bad your situation is, repairing your credit score can be challenging. If the reason behind your bad rating is down to incorrect information or because of late payments, it should be relatively easy to improve.

Unfortunately it can be very difficult to sort out for those with a Default of CCJ, but there is still hope. A Default will remain against your name for 6 years and is usually the result of failure to keep up to date with payments such as loans, and ignoring correspondence from the lender regarding the payments. This is very important, and in some cases can affect you if you require any kind of banking products, even a bank account.

There are 3 significant parts that make up your credit file:

• Personal details (name, date of birth, address etc.)
• Details of any financial products you have that involve credit, such as mortgages, credit cards, loans, phone contracts, bank accounts etc.
• Description of your track record, detailing past history of payment records to show whether you always pay your bills on time, or you have had multiple late payments. This is to demonstrate to lenders whether or not you can be trusted for future credit.

It might surprise you to learn that neither you assets or your income are taken into account, so in theory, a highly paid lloyer could be refused for a loan, while someone unemployed may be accepted.

Is is usually due to the fact that the person that is unemployed has a good history of paying off bills on time, but the person that is on a good salary has been unorganised in the past and as a result has missed payments.

Credit ratings are used to provide a base for lenders to read from, allowing them to judge whether or not they trust you to pay off potential credit.

If you lent £50 to a friend after being told you would have it back in a week, and it took 6 weeks, you may think twice before lending to them again – This is similar to a bad credit rating.

Equally if another friend borrowed £50 and paid you back on the day they had said, you would feel confident in lending to them again – This is similar to a good credit rating.

How can you get a good credit score?

The only way to get a good credit rating is by earning one. To do so, you will need to have had some kind of financial product in the past, or even a regular payment such as utility bills that was always paid off on or before the billing date within the terms stated in the original agreement.

You can only ever earn a bad credit rating, which is usually achieved through being consistently late with payments, or not paying them at all.

In short, your credit rating can be used by lenders to predict whether you are likely to make the required monthly payments in full and on time until the debt is paid off in full.

How to find details of your credit rating

If you would like to find out how good/bad your credit rating is, there are two main credit reporting agencies that can help – Experian and Equifax.

You can get a copy of your credit file sent to you from either agencie for just £2. Avoid signing up for the monthly plan if  you can, as this can be expensive and is not required by most people.

How to repair a damaged credit rating

The next section assumes that you have a bad credit rating due to either incorrect information, or several late payments.

The two most effective methods for improving your credit rating are:

Step One

Upon receiving your file, you must thoroughly check every piece information to ensure that it is correct, for example you may find that your surname has been spelt incorrectly, or a loan you took out in the past is showing the wrong amount.

Any mistakes on your file can be easily amended by the agency that you used to obtain the file, so get in contact using their helpline.

How being registered on Electoral roll can help your score

To recap, your credit file is used by any potential lenders as a guide to how trust-worthy you are when it comes to credit, and whether you are likely to repay the loan under the agreed terms. They will also look at stability.

Being on the Electoral Roll provides a good sign of stability and you don’t necessarily have to vote to be registered, so if you want to improve your credit rating, get on the phone to your local MPs office or the local Council for the forms and complete them as soon as possible.

Why it can be worth getting a credit file from each agency

several million entries are made to credit ratings each week, so it is not unheard of for mistakes to be made. If you find that a piece of information is incorrect with one agency, it is likely to remain incorrect at the other, even after updating it.

It is therefore a good idea to get both credit files from the two agencies, checking them in detail to ensure they are both accurate.

Step Two

Make some changes to your spending habits.

An effective method for showing lenders that you can be trusted with credit is by using your credit card(s) whenever possible, for example, using it to pay for every day spending such as groceries and fuel. This is because these payment methods don’t require credit, so your history cannot be tracked. The most important thing to remember when using a credit card is to always pay off the full balance owed on time.

So next time you go to to pay for fuel or your weekly shop, use a credit card.

In theory, using your credit card each month means that you’re borrowing money and provided that you pay off what you have ‘borrowed’ on or before the bill due date, it will have a positive effect on your credit score. Continue with this for between 6 and 12 months and you should see some positive changes in your credit score.

Important – don’t be tempted to begin using your credit card for credit purposes, i.e. getting into debt. If you want to improve your rating then you must use them for this reason only.

What to do if your credit card application is rejected

There are now several credit cards designed specifically for those that have a bad credit score. These cards tend to offer low credit limits (generally around £500) and high rates (around 40%), but this is not a problem, provided you pay off your balance in full without fail within the interest free days provided with the card (usually up to 56 days).

A popular card designed for consumers with bad credit ratings from defaults or CCJs is the Vanquis Credit Card, which offers a credit limit of up to £250, with 39.Online banking, 9% APR on purchases and up to 56 days interest free on purchases. To qualify for this card you don’t need to be a permanent resident of the UK, nor do you need to have a bank account.

It may be a good idea to apply for more than one credit card when attempting to improve your credit rating, as this gives you the chance to further prove yourself and show that you can be trusted to manage your credit.

Tags: 6 Years, Bad Credit, bad credit rating, Bank Accounts, banking, Banking Products, Ccj, County Court Judgement, Credit Card Loan, Credit Cards, Credit History, Credit Rating, Credit Score, debt, Default Judgement, Details Name, Finance, Finance Options, Financial Possibilities, Flip Side, Late Payments, Loan Mortgage, Money, Mortgages Loans, Repairing Your Credit, Salarys, Utility Bills

This entry was posted on Thursday, May 21st, 2009 at 10:17 pm and is filed under Repair My Credit Now. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.