Whether you are trying to obtain a mortgage for the first time, or you are doing the credit card shuffle, your credit rating will play a huge part in how successful you are.
There are a number of things you can do to improve your credit rating. Here are some of Fraser James Partnerships ideas to help improve your credit rating.
When assessing you, lenders have a set of boxes to tick which, if you don't fit, will mean a decline. Unfortunately it's not a very logical or transparent process, which adds to the frustration if you are declined. Quite often you're told "you need to check your credit report". So off you trot to check only to find that nothing is awry – so why were you declined?
The trouble is the criteria used to obtain credit will differ depending on the provider of credit, and the specific product you are applying for. The lender is looking for a cookie-mould fit in order to accept and, since the onset of the credit crunch, that mould has become smaller and smaller in size.
There are still plenty of things you can do to improve your credit file and rating. They don't guarantee acceptance of course;
Register on the electoral roll: We understand you may not have much of an interest in politics, but simply being on the electoral roll can improve your chances of credit acceptance. This is because prospective lenders and credit reference agencies use this to check you are who you say you are, and you live where you say you live.
Close any unused credit cards and store cards: There was a time when a large number of credit cards in your wallet signified status, but this isn't the case any more. Lenders may consider the amount of credit you have access to, as well as the amount of debt you're actually in, when assessing an application. So close any unused credit cards, store cards and accounts you don't use or need. Simply cutting cards up is not enough – you need to physically contact the provider and close it!
Don't make late payments, or, even worse, miss them: Yes, it's stating the obvious; but late or missed payments can stay on your credit file for up to six years. With lenders being particularly fussy about whom they are accepting at the moment, this might make the difference between an acceptance and a decline. If you've made a late payment due to circumstances beyond your control (your direct debit wasn't quite set up in time for instance), so long as you made the payment promptly when you noticed, talk to your credit provider and see if you can get this black mark removed.
Pay down your debts: Paying down expensive debt is a good habit to get into anyway, but not only can it improve your financial wellbeing, it can also improve your credit rating.
Never had credit? Improve your credit score by taking out a credit card: If you've never had credit before, it's difficult for a lender to assess you as a credit risk. Consider taking out a credit card (the first port of call here is your bank as they will have more information on your financial behavior. It's not a nice thing being declined for credit is it? It can leave you feeling judged and embarrassed.
A couple of purchases on it each month and then repaying it in full at the end with a direct debit. By doing this you are starting to show evidence of responsible management of credit. Now you might not get the most competitive rate on the market, but then again if you repay the balance in full every month, the rate shouldn't ever become an issue for you (as you'll never pay interest!).
Repair your credit score using a prepaid card: If you've got a less-than-perfect credit history, it's important to maintain all your payments; it's also important to try and repair your credit rating. They charge a monthly fee (not more than £5), which you'll need to keep paying for 12 months, but at the end they will add an entry to your credit file that you have successfully repaid a debt. Another great thing about this is that a prepaid card doesn't require a credit reference as it's not a credit card.
Check your credit file: Before you apply for any credit, check your credit report. You can view this on a free-trial basis or by paying a small fee (for the free trial be sure to cancel before the end of the trial period so you don't end up paying for it). Make sure you agree with all the information on the report. Are these agreements still active? Are you still financially associated with that person? Did you miss that payment?
Be clever when applying for credit: The more credit searches done in a short space of time, the less likely you are to be accepted for credit. So time your applications for credit carefully. This also includes applications for things you wouldn't normally think of as a credit agreement such as a mobile phone contract, or paying your car insurance premium monthly. This lowers your creditworthiness because lots of applications for credit in a short space of time will seem desperate to a potential lender.
The lender will only be able to see the applications made: they can't see whether they were accepted or declined (although they may be able to infer this from the agreements listed on your credit file).
Disassociate yourself: When you take out a joint mortgage or current account, you become "financially-linked" to the person you've taken it out with. If they have a bad credit rating it could impact yours.
If you have split up with your partner and/or the joint financial product you have taken is no longer between you both, inform the credit reference agencies of your disassociation. If not, the other person's financial dealings could still be having an impact on your credit score!
Sadly, credit is a necessary evil for most of us, particularly if you are looking to buy (or have already bought) a house.
Money Matters with Fraser Brydon
Do you have debts? If so, you are not alone.
Around one in two people have some form of unsecured debt, whether in the form of Credit Cards, Personal Loans or Store Cards, many are already struggling to cope.
There is an estimated £1,455 billion debt time bomb; couple this with rising inflation, which is set to stay with us for some time, and it is clear now is the time to act.
There are a number of options you need to consider before making any decision on how to manage your debts. Leave things to long before taking advice and the range of options available lessens considerably. The most important thing to do is speak about your problems, with your lenders, and with someone who can offer advice and guidance.
Remember, the options available in Scotland are different, it is important to seek advice from someone who understands this. For more information about Debt Solutions visit our website.
Real clients, real advice, real solutions.... Money Matters with Fraser Brydon