How to repair a credit rating in 30 days
FOR those with a poor credit history applying for any financial product, from a mortgage or loan to a broadband or mobile phone contract, can throw up challenges.
In this guide we take readers through some credit rating basics, including what information credit reference agencies check when they look at our credit reports, and why they do this.
We detail how over the course of 30 days anyone can take simple steps to improve their credit rating, such as getting on the electoral register and ditching unused credit, and how to maintain good habits for the future.
Overview of credit ratings
When we apply for financial products, credit reference agencies look at a number of factors to help lenders decide whether to grant our application. These factors are what we commonly refer to as our credit rating or credit score.
We don't have a 'number' credit rating system in the UK. Each lender weighs the product an individual is applying for - as well as the products they already have - against the information they hold about them, in order to reach a decision.
Credit reports include:
- Credit history details - including current credit accounts and details about defaults or missed payments. These details stay on a report for six years.
- Any past credit applications. These are kept for two years.
- Public record information, such as County Court Judgements (CCJs) and bankruptcies. These are available to view for six years.
- Personal information, such as name and date of birth, and the address a person is registered to on the electoral roll.
When a lender checks an applicant's credit rating they are simply checking how likely it is that the applicant will pay back the money they want to borrow, or pay for the product or service they wish to take out.
So to increase the chance of being accepted, follow this guide to repairing a credit rating in 30 days.
Get on the electoral roll | Order a credit report
One of the easiest things anyone can do to repair their credit rating is to get on the electoral roll, which lists the names and addresses of everyone registered to vote within a certain area.
When someone is registered to vote it gives lenders a really simple way to see that their name and address check out. It doesn't take long to do and it's also free.
Each local authority has a different procedure. Go to Direct Gov's electoral roll site to register now.
Anyone who's unsure about whether they're registered or not can check with their local authority. Alternatively, About My Vote can point people in the right direction.
Note that anyone who wants to improve their credit rating should be consistent with the information they use in credit applications (see week four for more on this). It's important that the address provided for each application is in the same format as the address listed on the electoral roll in order to avoid problems.
The next task for week one is to order a credit report.
As noted earlier, a credit report consists of information that affects our ability to take out credit - including current credit agreements, public records like bankruptcies and address details.
This is not the non-existent 'credit rating black list' but just the information held by major reference agencies that lenders might refer to.
Many reference agencies make these reports available for free online (see here for more details) with a 30 day trial of their service.
After 30 days anyone who wishes to maintain the service needs to make a regular payment. Alternatively those who only want the trial must cancel the service before the 30 days are up. There's more on how this works in our full review.
It's now even possible for people to get paid to access their credit reports.
To benefit a person simply needs to sign up to a cash back website, like Topcashback or Quidco, and then click through from the cash back site to the credit checking facilities with Experian or Equifax. Again though, to avoid monthly fees subscribers must cancel before the trial period ends.
If that sounds like too much effort it might be a better option to order a statutory credit report, which is a one-off credit report document. This option negates the need to sign up with one of the credit reference agencies and costs just £2.
They can be ordered from any of the three major agencies - Equifax, Experian and CallCredit - and can either be viewed online or sent in the post.
As they can take up to a week to receive, we'll return to statutory credit reports in week three.
Automate finances | Ditch unused lines of credit
In the long term, using financial products consistently and responsibly will help an individual to improve their credit rating.
That's why in the short term it's a good idea to automate as many payments as possible to avoid obvious 'black marks' on a credit report, like missed credit card payments.
The aim is to make our personal finances run by themselves, so for week two here's some ways to achieve this:
- For those with a credit card set up a direct debit to at least meet the minimum repayment each month, or as much as it's possible to pay.
- Set up direct debits for as many outgoings as possible, such as utility bills and mobile phone contracts, to ensure the correct amount is paid on time each month.
- For those who find themselves dipping into an unplanned overdraft request an overdraft limit with the bank to provide a buffer and minimise overdraft fees.
- For people who have an arranged overdraft but exceed its upper limits, consider rearranging the overdraft or switching current accounts altogether to benefit from a better facility. For more guidance on overdrafts see here.
Aside from automation, another task for week two is to get rid of credit products that are no longer being used.
Having a rarely touched current account won't hurt anyone, but holding a lot of credit cards, even if they are never or rarely used, makes a person a much higher risk for credit lenders.
This is because holding a large number of credit cards means an individual already has a lot of access to credit, which they may be unable to pay back.
Anyone who wants to cancel a card must call the provider. It's not enough to simply cut them up to ensure they can't be used. The provider needs to know that the credit card is no longer required for it to have any beneficial effect on a person's credit rating.
Review credit reports | Debt busting
By now those following this guide should have at least one credit report to peruse - whether they're viewing online or have received their statutory credit report in the post.
Go through the report with a fine toothcomb: look for inaccuracies in personal details, like an incorrect address or the wrong date having been recorded for when a previous address was vacated. Look carefully for any financial inaccuracies too, such as a wrongly listed missed payments.
If any County Court Judgements (CCJs) or bankruptcies are listed there is no way to remove them, but they are automatically erased after six years.
Also look out for financial links with other people that could be causing problems, such as having a joint mortgage or bank account with someone with a poor credit history.
However, simply living in the same house as someone with a bad credit rating isn't enough to do any damage. Even being married or in a civil partnership might not be a problem. There's more on this here.
If anything is amiss, it's possible to raise a query about a credit report with the credit reference agency. This is important because any inaccuracies will impact how likely it is that credit providers will accept us for a loan, mortgage, or other financial product.
After a query, the credit reference agency can update a report or remove some things, like a debt default, altogether.
As a last resort, complex problems can be recorded on a report in a 'note of correction'. This can help to improve a credit rating by explaining an unusual blip to prospective lenders.
However, research from Equifax released in June 2011 revealed that just 4% of their customers actually ever queried a credit report and just 0.01% applied for it to be corrected, indicating that this is not widespread among consumers.
Interestingly though, research into statutory credit reports from Which? in 2014 found that upon ordering and receiving their report, a quarter of their researchers found a problem or an entry that they wished to dispute.
This indicates that inaccuracies in our credit reports could be more common than we think and that it's definitely worth checking them over carefully.
It's important to note clearly here that credit reports list any outstanding debts that a person has as well as past debt problems.
If there's an issue with a debt that's still open this can be rectified by contacting the lender directly, rather than the credit reference agency.
The potential for debt, such as holding a lot of credit cards, makes lenders jumpy, and the reality of debt makes them even more unlikely to offer additional lines of credit.
This doesn't mean that responsible borrowers have bad credit ratings. But the best thing for everyone to do is to minimise debt as much as possible.
As credit card debt can be particularly pernicious, deals that offer introductory rates on existing debts moved to the card can be useful - compare deals here. Find out more about dealing with multiple card debts here.
Keep those good habits | Consider credit building cards
The best way to truly repair a credit rating is to prevent any future damage.
So in week four that means laying down the foundations to maintain stable and consistent finances in the future.
We've already mentioned automating payments as an example of this but we'll look at a few more ideas to establish good habits here.
Anyone who wants to apply for a new credit card or loan should thoroughly research the product and apply for it at the right time, because both reduce the chance of rejection.
For example, individuals should avoid applying for credit after a recent change like a new address or a new job.
This is because one factor that lenders assess - from the information they have available - is an applicant's stability. Remaining in the same property and job for relatively long periods of time indicates to a lender that an applicant has a stable lifestyle and stable finances.
Reading up on the product should also help to avoid an application being rejected.
Credit rejections are best avoided because each application leaves a mark on an individual's credit report, which hurts their overall standing.
The number of credit applications on a report doesn't matter for successful applicants, just for those who don't get the deal.
To avoid any adverse effects, applications for products that require credit report searches should be spaced out by at least three months. This offers the best possible chance of success, even for products that seem completely unrelated to each other.
Remember, getting a new insurance policy or moving to a new mobile phone or broadband contract can mean a credit file search.
Another option is to apply for an instant decision credit card - there's more information on these here.
These cards tend to apply a 'soft' credit search on applications in order to assess basic details about an applicant and make a quick or 'instant' decision. However, further investigation by the lender is sometimes necessary and can leave a hard search on a credit report.
Read this guide for more information on how long it takes to get a credit card.
Finally, it's worth considering products that are specifically aimed at helping to rebuild or improve a credit rating.
For those who aren't ready to make a credit card application, the Cashplus prepaid card offers another way to add positive marks to a credit file.
Prepaid cards aren't subject to credit checks because there is no real borrowing involved. In most cases the cardholder simply loads money onto the card and uses it like a debit or credit card.
However, some of these cards can help to improve credit ratings by essentially 'loaning' the cardholder a fixed amount of money, which is then repaid in monthly instalments. The repayments show on an individual's credit file as a positive payment history - read more on this here.