For a richer life

How to clean up your credit rating

How to clean up your credit rating Andres Rueda/Flickr
Is your credit rating low? Have you been refused a loan and you can’t figure out why? It doesn’t make sense if your financial situation is pretty healthy, right? Well, there are a number of things you can do to get to the bottom of – and improve – your credit report.
  • Find out what’s on your credit record for free with Experian
  • Why you should be checking your credit report
  • Go for a credit card which is specially for people who want to strengthen their credit rating or rebuild their credit history, like the Barclaycard Initial card or the Capital One Classic MasterCard.

Clean up your record immediately

The first thing you should do is register with one of the credit report agencies – Experian, Callcredit or Equifax. For just £2 you can get a paper copy of your credit check in the post. Alternatively, you can view what’s being said about you in real time – just like the financial companies do – night or day, online.

With CreditExpert (run by Experian) this costs £14.99 a month, but you get the first 30 days free with no obligation to remain a subscriber. So, you could just join up, get the free month, then stop.

Similarly, Equifax offer a free 30-day trial with their Credit Watch Gold report. Checkmyfile offers unlimited access to your credit files for £9.99 a month – potentially the cheapest way to monitor your credit file in the long run.

On the other hand, you might very well know why no one will lend to you – you have County Court Judgements (CCJs) against you, you’re bankrupt, or have done an IVA (individual voluntary arrangement). If you’ve learnt your lesson, or your circumstances have changed so that you have more money now and you know what to do with it, you’ll want to clean up your credit record.

Why you should check your credit report:

If you’ve had trouble getting credit, it makes excellent sense to find out what information lenders are seeing. Mainly because by doing so you can correct any mistakes or anything you think isn’t an accurate reflection of your overall financial situation.

By doing this, you’ll improve your credit score – the thing on which financial companies base their decisions on whether to lend you money.

You do this by contacting the company directly and make your case for wiping the fault from your file. If you don’t find them very receptive and you’ve got a good case, you can complain to the Financial Ombudsman (which acts as an independent referee of the financial sector).

Alternatively, you can add a Notice of Correction – a 200-word statement  – to any entry on your credit record, explaining it. For example, if you missed a few payments on your credit card a couple of months back due to illness, ordinarily the bigger story doesn’t appear – just the cold, hard facts that contribute to your bad record. So, an explanation of why payments were missed may influence a lender’s decision to offer you money.

With fraud and identity theft on the rise, it’s possible that someone else created a credit problem for you somewhere along the line. Checking your file could alert you to someone having stolen your identity without you knowing.  If that’s the case, get the situation sorted and add a note to your file.

Understanding your credit score

The higher it is, the better your chances of being lent money. Not what you’d call rocket science!

To remove some of the mystery surrounding credit scoring, Equifax have revealed their ‘credit scoring test’ system. It’s worth having a look at it even if you’re looking at your report through another company – theirs will be similar.

Excellent (475-900) – Your score shows you’d be a strong candidate for credit

Good (400-474) – You have a good chance of being granted credit

Fair (350-399) – You have a reasonable chance of being granted credit

Poor (300-349) – You may have some problems getting credit

Very poor (0-299) – You may have considerable difficulties getting credit

If you score ‘very poor’ or ‘poor’, there are things you can do to move up to ‘good’ or ‘excellent’.

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How to improve your credit score

It doesn’t happen overnight. It takes at least six months – probably more like a year – to get a better credit  score, particularly if you’ve been bankrupt in the last few years.

The first thing to do is correct any mistakes on your report, as we talk about above.

Got accounts you don’t need? Close them. Financial companies are paying attention to the total amount of credit available to you. So while you may not be using them, dormant accounts could still be affecting your credit score.

Also, make sure you’re on the electoral roll. Weirdly, not being on that can count against you for your credit rating. Just ring up your local council to get yourself put on it.

If you think you might have a low credit score, but you want to know how much a company would charge for a loan, ask them to do a ‘quotation search’ not a ‘credit search’. This means they will give you an idea of the interest rate they would charge but they won’t do a full credit check (and then potentially refuse you). Every time a company does a credit check on you it is recorded – particularly if they refuse you credit. This harms your credit rating.

That done, the main way to improve a credit record is by borrowing money and paying it back religiously, on time, every month.

Lenders are looking for proof that you’re capable of repaying borrowed money. “But how can I borrow if no one will lend to me?!” you wail. You do it by borrowing from one of the very expensive, ‘sub-prime’ lenders and making sure you pay back before the interest period kicks in.

In other words, take out a credit card with a very high APR (Annual Percentage Rate), use it a small amount every month and then pay the bill every month during the interest-free period. There are a few companies that offer credit cards to people with poor credit records.

  • Capital One’s Classic MasterCard: Good if you’ve been turned down for credit but want all the benefits of a credit card. The Capital One Classic MasterCard offers sensible, manageable starting limits of £200–£1,500, helping you keep control of your finances while spreading the cost of your purchases – helping you manage your money. And while you spend you’ll be helping boost your credit rating, helping make your financial future brighter. But only use it if you can pay it off – otherwise you’ll pay interest of 34.9% on your debt. Otherwise, it’s a good card that will help repair your credit rating. You can apply for one online – you should get a response within 60 seconds.
  • Vanquis Credit Card: The Vanquis Visa Card is similar but comes with a slightly higher rate of interest at 39.9%. It is specifically aimed at people with a bad credit history who can’t get other cards. Again, only use it unless you know you can pay it off. You think things are bad now? Just see how you feel if you use this, can’t pay it all back and then get the massive interest slapped on every month.
  • If your credit rating is poor but not terrible (i.e. you don’t have CCJs against your name and you have only missed a payment or two in the last year) then you could try the Barclaycard Initial card which is specially for people who want to strengthen their credit rating or rebuild their credit history. The interest rate is high – 34.9% typical APR – so only get this card if you know you will pay it off every month and you’re serious about rebuilding your record. As a nice little bonus, Barclaycard will give you 0% interest on purchases for the first three months.

If you’ve been made bankrupt in the last few years or you have started an IVA scheme, ring up the above companies for a general quote before applying. It’s quite possible even they will reject in the early stages of an application.

  • If they do reject you, it’s not the end of the road. Another option is the Cashplus Creditbuilder prepaid credit card. Prepaid cards are a really good idea for people who can’t get credit cards anyway because you don’t need a credit check to get one (see our article about them here), but this one is even better. When you use this card, and use it regularly for twelve months consecutively, you can actually build up your credit score (hence ‘Creditbuilder’!).

If you have the money, it would be worth subscribing to CreditExpert to see how your credit score is improving over the months – but only if you have the money. Otherwise you could apply for your basic credit report every few months to see the change as you go on.

After all that, though, a lender’s decision is at their discretion and you could still be refused credit. Nevertheless, following our advice will hold you in good credit stead.

How to get Credit Expert’s free online report:

  • Click on this link for Experian. It will take you to their home page where there’s a ’30-Day Free Trial’ box. Click on it, and you’ll be taken through to the registration page.
  • Now follow these simple steps:
  1. Complete the registration.
  2. Make a note of your details, including the credit file reference number.
  3. Your PIN should arrive in the post in a few days.
  4. Use the PIN to log in online and check your credit record.
  5. Inform CreditExpert of any inaccuracies.
  6. Cancel your membership (so you don’t forget or get charged anything) by phoning 0800 656 9000 and selecting Option 4. You can email but you’ll be quoting your bank details, so it’s best to speak to someone on the record.

Need to make some quick cash? Now read…

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  • jones

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  • clara

    I’m janices by name. I live in USA, i want to use this medium to alert all loan seekers to be very careful because there are scammers everywhere.Few months ago I was financially strained, and due to my desperation I was scammed by several online lenders. I had almost lost hope until a friend of mine referred me to a very reliable lender called Rev. John who lend me an unsecured loan of $85,000 under 2hours without any stress. If you are in need of any kind of loan just contact him now via: SANGQIANGCASHLOANS@YAHOO.CO.ZA I‘m using this medium to alert all loan seekers because of the hell I passed through in the hands of those fraudulent lenders. And I don’t wish even my enemy to pass through such hell that I passed through in the hands of those fraudulent online lenders,i will also want you to help me pass this information to others who are also in need of a loan once you have also receive your loan from Rev. John , i pray that God should give him long life.

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  • Stackers

    Sorry, further to my last comment, the site is noddle.co.uk

  • jed1979

    Hi,

    Interesting article.

    The equifax thresholds are incorrect they are:

    0-299 (very poor)

    300-349 (poor)

    350-399 (fair)

    475-900 (excellent)

  • WWE1982

    I need some help and need it fast.

  • Tamesha Hadfield

    Is there a place to get free credit scoreIs there a place to get free credit score?MyFICO Review: Scam or Sweet Deal For Free Credit ScoresWhere can i get an online credit score check for freeBesides free credit scores, how many other credit scores are thereCredit rating Verify How you can Perform Totally free Credit Score CheckHow To Get A Free FICO Credit ScoreDo preapproved credit card offers lower your credit score

  • Trevor

    If you get rejeted for a card, then wait a few weeks before you apply for another. Multiple unsuccessful applications are another signal that credit agencies watch for.

  • Sean

    Ridiculous, a messy credit history doesn’t ruin people’s living. Buying into the perception that credit history is important ruins people’s lives. The system is devised to catch people out and keep them chasing their tail. Only when you can break free from that perception of life can you come to understand the truth of it. You are all locked in a five sense reality, focused towards acquiring things and judging your success on your car and house. Break free and look within.

    • Phil Baker

      Well said. Unplug yourselves from the matrix!

  • dj

    hi, I just tried for a loan in NATWEST though they said ur credit check not allowed the to do so , after inquiring at equifax i come to know that their is 4 payment arrears though I already paid my natwest credit card due bills and closed it in jan 2010 how come?

  • Lisa

    I have a Capital One card (current limit of £1800) at the extortionate rate mentioned above. I don’t have any CCJ’s but I did miss a couple of payments early last year. In July 2010 I finished paying off a 2 year loan from my bank I also missed a couple of payments around the same time as I was out of work. I really really need to change my credit card but I don’t know who to try to apply to. My income is ridiculous low (under £15,000 pa). Will I be able to apply and be accepted for a lower rate.

  • J Skysun

    I recently submitted a NOC to some CRAs and only one has replied so far. It is true though, someone else’s mistakes can ruin your life and it can take years to put things right if this is ever possible again. It can effect all areas of your life or the ability to have a life at it’s worst!

  • Jan de Brauw

    I have applied for the Vanquis Card as I am interested in sorting myself out financially (at last) and was rejected. Does this mean i am beyond help??

    • http://www.jasminebirtles.com Jasmine Birtles

      Hi Jan. No it certainly doesn’t mean you’re beyond help. No one is! However, if you’re trying to sort yourself out financially I suggest you get in touch with the CCCS (www.cccs.co.uk) or your local Citizen’s Advice Bureau and get them to help you get yourself back in the black. If Vanquis has refused you then I think it is definitely time you got some good, clear, FREE, professional help and both of these organisations are good at that. Also, do go through our advice in the ‘Debt Issues’ section http://www.moneymagpie.com/borrowing-debt/ and join up to our Debt Emails http://www.moneymagpie.com/debtemails/. Do let us know how you get on ;-)

  • http://www.jasminebirtles.com Jasmine Birtles

    Sam, it generally takes about six months to get your credit rating back up to a decent level. A year is even better but after six months you should be able to get a good mortgage rate.

  • Sam

    How long do I need to wait for my credit record to be clean,so that I can apply for a mortgage after having paid all the outstanding debts and still have a big deposit left.

  • http://www.moneyexpert.com/Apply/Apply.aspx?affiliateID=236&productID=83845&productTypeID=1 s hobby

    i just got declined even though i got a mortgage 9 months ago my credit is fine. I have an equifax report and nothing shows up on their either.

  • David

    Trouble with the Notice of Correction is that the CRAs dictate exactly the wording you are able to use (even when you are not being slanderous or in-acurate) and the ICO takes a very long time to get around to looking at your complaint. In the mean time, your credit file, and therefore sometimes, your life is screwed. CRAs have far too much power over us and this must be kerbed. Remember, CRAs & Debt Collection Agencies work together VERY closely!

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