For those who struggle to get credit because they don’t have a long credit history (e.g., they have never borrowed money from a financial institution, never had a mobile phone contract or a credit card, etc.), it can be really difficult to find someone to lend to you as you don’t have a track record of paying credit back.
Another group of people who struggle with their credit rating are those with a bad credit history. It doesn’t necessarily take bankruptcy or a major financial issue for your credit file to take a hit. Maybe you have missed a couple of bill payments? Each time there is a money mishap like this, lenders can leave a mark on your credit file, which raises a red flag when you come to try and borrow money in the future. Some of these issues can still be on your credit file for 6 years after they occur, even when fully paid off.
Here’s the bottom line: Lenders are looking for people who have proven they can borrow responsibly.
We have compiled a list of ways in which you can help build your credit rating up, with tips to help those build a solid credit file for the first time, and for those who are recovering from a poor credit history.
1) Make sure you’re on the electoral register at your current address
Many lenders use it to check your name and address when you apply for credit.
2) Check your credit history files with the reference agencies
Checking these may help you to see if there are any mistakes on your records that you can ask them to rectify e.g. incorrect address details or other admin errors. Doing this can take some time, depending on your circumstances. You can find out more information here.
3) Ensure you make every single existing credit repayment on time, every time
This can be everything from mobile phone bills to credit card repayments or car insurance. Direct debits or CPA are easy ways to manage this so you don’t forget to make the repayments.
4) Don’t make lots of applications for credit in a short space of time
Each application (whether accepted/approved or not) stays on your file for around a year. Lots of these in a short period may send a red flag to lenders.
5) Start your borrowing off small
If you’ve not borrowed before, it can be difficult to get any type of credit, but you might be able to apply for a fairly low-value mobile phone contract to help get yourself on the credit building ladder.
6) Get a credit rebuilding credit card
These are cards with a small limit and a fairly high interest rate, but the idea is that you put a few normal day-to-day purchases on it, pay the card off in full every month and never use it to take out cash, so you’ll never have to pay any interest. Showing you can manage this type of borrowing without any problem may be a good signal for future lenders.
7) Consider cancelling your unused credit or store cards
If you have several cards with a balance of £0 that you no longer use, you may want to consider canceling the accounts with the providers (don’t just cut up the card) so that the credit limit of each card doesn’t count against you for future borrowing. However, if you have a card or two you’ve had for a long time and have always managed well; it can be a good idea to keep it open to show you can manage that credit responsibly. You also may have to check with your provider on the possible conditions around cancelling the unused credit or store card. As the Money Saving Expert explains here, everyone’s circumstances are different, so you’ll want to think carefully about your options.
8) Try a lower-interest product
Borrowing money at a high interest rate isn’t what anyone wants to do, but if you have a poor credit history then it’s likely that you’ll only be able to borrow from lenders offering these types of rates until your credit file recovers. A credit line is different to a standard loan as there’s no end date; you can withdraw up to your credit limit at any time, and are only charged interest on what you use. By borrowing and repaying on time over a sustained period, your credit file may start to show that you have responsibly managed this type of borrowing.
9) Use your land line phone number on applications
It’s only a small factor, but having a fixed line number may help with security checks and provide evidence of stability, along with the number of years you’ve lived at your current address.
10) Check your credit files annually
Making sure that you check your file with the credit reference agencies at least once a year can help to flag any potential issues e.g. identity fraud if someone else is applying for credit in your name. Also check a few months before you plan to make any major applications e.g. mortgage, just to make sure everything is as it should be. You can check your credit score for free through companies like Callcredit, or directly from other credit agencies for £2. The Money Advice Service has more information about how to access your credit score here.
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*We understand that there are many ways of building your credit, and people may have different views and suggestions other than the above. All links provided are for information purposes only; be sure to do your own research when trying to improve your credit rating.