Improve your credit rating

There are a number of specific things you can do as good practice to improve lenders’ attitudes towards accepting you for new credit.

• Get on the electoral roll.

If you’re not on the roll, it’s unlikely you’ll get any credit. Write to your local council to ensure you are. For those who aren’t eligible to vote (mainly foreign nationals), send all the credit reference agencies proof of residency and ask them to add a note to verify this.

• Time applications correctly.

Lots of credit searches, the notes left on your file when you apply for things, in a short space of time hurts your score. Space out applications, not just for credit but for car insurance, mobile phones and others, as all can leave searches on your file.

Moving house also disrupts a score, so make important applications pre-moving. Plus you’ll score better when you’re earning, so if you’re about to take time off, go on maternity leave or suspect potential redundancy apply beforehand.

• Building a good credit history/repairing past problems.

Credit scoring tries to predict your behaviour. If you’ve no credit history it’s more difficult for lenders to do this, so you’re more likely to be rejected. Therefore building a history is the best tactic.

Use ‘expensive’ credit cards.
If you can’t get credit, sadly the solution is apply for hideous 30%-ish rate credit cards offered by the likes of Barclaycard Initial, Capital One Classic, Monument, Aquacard and Vanquis.

You can also try the special Smartsearch from comparison site MoneySupermarket, which effectively assesses your credit worthiness (a bit like our Credit Checker), then tries to match you up with the best card.

Importantly, it doesn’t do a credit search, as that itself would hit your credit score. Instead it just asks a few basic credit history questions and works with credit reference agency Equifax to give a rough and ready assessment, followed by indicating ’suitable cards’.

To help rebuild your credit rating, you can use these for six to twelve months, spending a little every month. But there is a vital golden rule….

Strictly repay EVERY month, in FULL, so there’s no interest cost.

After that you should’ve built a credit history allowing you to move into the mainstream. This tactic is also useful for those who’ve defaulted in the past.

As a last resort pay for a special prepaid card.

If you’ve been rejected for cards like this, there is a ‘last resort’ solution. The Cashplus Creditbuilder is a prepaid card costing £9.95, meaning you have to load it with cash before spending, rather than having a credit facility.

Cunningly it charges a £4.95 monthly fee, which technically counts as a £59.40/year loan. As long as you pay the fee every month for a year, this info will be passed on to credit reference agency Experian.

Crucially though no credit check is needed to get the card. Once you’ve made 12 payments, it should show on your credit history as a fully repaid loan agreement, making you a more attractive customer (to those companies who use Experian for credit scoring, which is the vast majority of them) and hopefully meaning you can apply for better credit card and loan deals. Though you are of course paying £70 for it!

For more details on this, including pros and cons, read Cashplus Creditbuilder discussion.

• Keep up payments and never be late.

Always try to follow at least the minimum repayment plan for your financial products. Even if you’re struggling, don’t default or miss payments. Doing this once or twice will cause problems that can cost you for years (though you may be able to get past charges back – see Bank Charges Reclaiming article).

If you are in difficulties, the cliché ‘contact your lender’ is a good one. Hopefully it will try and help a little. Changing your repayment schedule is preferable to you defaulting – and though it will hit your credit score, it’s better than a County Court Judgment (CCJ) against you.

• Marriage doesn’t hurt, joint finances does.

Simply marrying or living with someone with a bad credit score shouldn’t impact your finances, as third-party data (i.e. someone else’s info) doesn’t appear on your file.

Yet if you’re ‘financially linked’ in any product, it can have an impact. Even just a joint bills account will mean you are co-scored. If one partner has a poor history, keep your finances rigidly separate, and it should maintain access to good credit for the other.

As a note, there’s no such thing as a ‘joint’ credit card; technically it’s one person’s account and the other just has access to it.

If you split up with someone you’ve joint finances with, once the accounts are separated, always write to the credit reference agencies and ask for a notice of ‘disassociation’, to stop their credit history affecting yours in the future.

• Get a ‘quotation search’ not a ‘credit search’.

If you’re just trying to get a specific quote for a loan, ask the lender to do a ‘quotation search’ and not a ‘credit search’. This means the enquiry won’t have a negative impact on your credit score. Sadly many lenders haven’t yet adopted this practice, but it is worth asking. If not, do consider whether you really want to get a quote – if it’s unlikely you’ll get the product, don’t bother.

In both the Personal Loan and Credit Card Balance Transfer articles, there are details on special comparisons available to find out who’s likely to accept you, without actually applying. Plus the credit checker gives you an idea for free of the type of cards you’ll get.

• Evidence of stability is good.

Home owners rather than renters, and those who are employed rather than self-employed, tend to score more highly. Putting a fixed (land) line rather than a mobile number on application forms can help with security checks and improve your chances. Being with the same employer, bank and current address for a while all help too.

• Avoid the ‘rejection spiral’.

There’s a nightmare scenario you need to avoid, called the rejection spiral. It works like this…

You apply.
You get falsely rejected due to an error.
You apply elsewhere.
You get rejected again.

This continues, until finally you check your files and get the error corrected.

You apply again
You’re rejected, not due to the error, but because of all the recent ’searches’.

Thus if you’re rejected once, immediately check the files are correct, otherwise you may mess up your score for an age. You’ll be told by the lender which credit reference agency it used to assess your info, so focus on that.

It is possible after an error to get successive searches wiped, but it involves negotiation both with the agency and the lender and isn’t easy.

• Cancel unused credit cards, debts and accounts.

Access to too much credit, even if it isn’t used, can be a problem. If you have a range of unused credit cards, cancel most of them; this lowers your available credit and should help.

• Use any savings to pay off debts.

The amount of outstanding debt you have is part of the info lenders have access to, so minimising this is a clever strategy. In general, you’ll be better off by using savings to pay off expensive debts anyway.

With the credit crunch biting, this is particularly true if the product you’re applying for is a mortgage. People who haven’t paid much of their mortgage debt off are struggling to get decent new deals.

For those with an LTV (Loan to Value ratio) of over 90%, meaning your mortgage debt is at least 90% of the house’s value, getting a new mortgage has become very difficult. For those with an 80% to 90% LTV you should get a new deal, but it won’t be too cheap.

So if you have savings, and can use them to significantly lower your mortgage borrowing, enabling you to get a better deal, it’s often worth doing. The extra amount your savings will earn isn’t likely to be as much as the benefit from a cheaper mortgage. 

And a final thought. Though it may be tempting, lying on your application form doesn’t help. Firstly it’s an offence, but also if lenders can’t corroborate your information it’s normally not used for credit scoring anyway.