How can I improve my credit rating?
Whatever your credit rating, you won't qualify for any credit that creditors feel you can't pay back - like a £300,000 mortgage on a salary of £20,000.
Plus, different sorts of credit (mortgages, overdrafts, credit cards, etc.) come with different standards. You could be approved for a credit card but refused a mortgage.
And different creditors have different ideas of what's important, even if they offer the same kind of service - just because one shop offers you a store card, it doesn't mean another one will.
The Top 6 'Yes or No' factors
Six things are almost always important, whether you're talking to a bank, a high-street shop or a mobile phone operator. If you can work on any (or all six!) of these factors, you can seriously improve your chances of success in the future.
We've split them into two categories: three 'Easy steps' you can take right now, and three 'Strategic steps' you'll have to work on.
3 Easy steps
#1 - the Electoral Roll
#2 - bank accounts
#3 - credit applications
3 Strategic steps
#1 - credit history
#2 - moving house
#3 - employment
3 Easy steps
Easy step #1 - the Electoral Roll
The Electoral Register includes the names and addresses of just about every UK citizen over eighteen. If you're not on it (or not listed at your current address), creditors are likely to think twice about extending you credit.
Action: Talk to the local council and get registered.
Easy step #2 - bank accounts
Potential creditors prefer to deal with people who can demonstrate that they know how to handle money.
You'll get:
- lots of points if you've been with the same bank for years
- fewer points if you've just opened an account
- very few points if you don't have an account.
Action: If you don't have an account, get one. If your credit rating is stopping you from opening one, look into the available basic bank accounts.
Easy step #3 - credit applications
Sometimes, the more you ask for credit, the harder it gets. Why? Every application is recorded on your credit file. If you've been refused credit too often in a short space of time, lenders might think that:
- you're desperate for money, and
- no-one wants to lend it to you.
Action: If you've been refused many times recently, wait six months before you try again. Use that time to think about the other points on this list, and do what you can to improve your scoring there.
3 Strategic steps
Strategic step #1 - credit history
Creditors will be put off if your credit history includes things like:
- County Court Judgments
- Defaults on debts
- Mortgage or rent arrears
- Missed or late payments
- Bankruptcy
Once they've been noted on your credit rating, unless they're cleared within a month they'll stay there for six years - you can't remove them by paying off the original debt that led to them being there. Still, once you've paid them, your credit history will show that they've now been settled. So creditors will know that you've had problems, but they'll also see that you've now sorted them out.
Action: Try to keep your debts at a level you can afford - and if that's not possible, seek debt help immediately. Get in touch with All About Money (0800 074 4300).
Strategic step #2 - moving house
It might seem unfair, but creditors can be cautious about dealing with people who are always on the move. You'll get:
- lots of points if you've lived at the same address for 3 years or more
- fewer points if you've had two addresses in the last 3 years
- very few points if you've:
- had more than two addresses in the last 3 years, or
- lived at your current address for less than 6 months
Homeowners have two advantages:
1) They're less likely to move than tenants, so they'll probably score more highly here.
2) Even if they do move, potential lenders still see them as more reliable because they've been able to get a mortgage and (presumably) keep up the payments.
Action: No-one moves home without a good reason, but if you really need a good credit rating it might be worth thinking long-term - and staying in one place for a while.
Strategic step #3 - employment
Again, it's all about continuity. You'll get:
- lots of points if you've had the same job for years
- fewer points if you've had two jobs in the last 3 years
- very few points if you've:
- had more than three jobs in the last 3 years, or
- been unemployed between jobs
There are exceptions. Lenders aren't likely to be put off if you've been promoted or changed jobs to get a higher salary!
Action: No-one changes their job without a good reason, but if you really need a good credit rating it might be worth thinking long-term - and staying in one job for a while. And if you start a new job, wait a few months before applying for credit, since the lender will probably want to see a few payslips.
Top of page