Improving Your Credit File

Understanding your UK credit rating

Now that you’ve found your credit file and have seen what’s on there, it’s time to learn how you can improve it for the future. This blog and the video below gives you some hints and tips about what you can do to make the most of your file.

Finance companies, whether they are loan companies, mobile phone shops or those that offer store cards, will look at certain factors to determine whether you are a good person to lend to. Credit ratings are a simple way of showing how much risk you are as a customer.

Factors which indicate risk could be:

  • missed payments
  • how often you’ve tried to get credit
  • having too much debt

Credit ratings differ from company to company but the most common ones are Experian, Call Credit and Equifax so it is recommended to check your score with one of these.

 

The Videos
Understanding Your Credit File - click here to watch
Improving Your Credit File - current
Maintaining Your Credit File - coming soon

Getting the basics right

This is easier said than done but it's really important.

Step 1
The first, and perhaps simplest is to be on the voters/electoral roll (this doesn’t mean you have to vote). The voters roll is a tool that many finance companies use to see where you are living and for how long you have been there. This is often an important part of lending decisions by companies, especially for customers who don’t have excellent credit files. A lot of companies will automatically refuse you for finance if you’re not on the voters roll so make sure you’re registered. It’s worth noting that you can “opt out” of the open register which means your details won’t be available for purchase by companies, but you’ll still get the benefit of it showing on your credit file. To opt out select this option when you register or contact your local council.

Step 2
Make sure you have a UK bank account. Companies will want to see money going in and out of your account so they’ll want to know you have one. This will also be where they take money out of so again, make sure it’s looked after and you have money available to spend.

Step 3
Next, prove you can pay. Again this seems simple, but it’s often not as easy as it seems. By paying old debts, you’re showing lenders that you can afford to pay, and you want to give the money back to companies you’ve borrowed from. This means paying back any old debts, even if you no longer have the product any more (for example, an old mobile phone contract). Paying back debt is great, as it shows that you will probably pay any debts you take out going forward. There is a balancing act to be had here though as you need to show you can pay back money without stretching yourself, this means having some debt to pay back. If you get to the point where you’re not making regular payments towards anything (and only paying cash) it means companies have no evidence you’re able to do so in the future.

Step 4
Finally, you need to show that you have money to pay debts. That means banking any income you receive as, if it doesn’t go through the bank you can’t prove you receive it which could see your application refused. Not everyone will ask to see bank statements but if you have a riskier job (for example, self-employed or zero hour contracts) they may request them. Having no money going into your account will show as a red flag.

Wrong information

If information is wrong the first option would be to speak to the company who is reporting incorrectly on your credit file to see what they can do to help you. If it is a genuine mistake, they should correct any errors they have made. This could be making an amendment to the entry on your credit file, or you could ask them to remove the data they have put on your credit file entirely. Something wrong may be: showing that you’ve not paid or that your account isn’t showing up after several months.

Getting declined

If you are declined credit, the first place to look is at your credit file. There are some free options out there that can show you basic information required, or you can buy a statutory report from the various agencies out there, which are around £2.

 

What exactly affects your credit rating?

Common issues and solutions

Anything extra that shows up on your credit score will either positively or negatively affect you. Those which can affect you in a negative way are below, along with possible solutions.

Issue: Late or missed payments will show on your credit file which will indicate that you haven’t been able to pay that particular.

Possible solution: If you think you’re going to miss a payment talk to the company you owe and see if they can reduce the payment for that month. Taking this step will mean you can still pay an amount towards what you owe and it will show as paid on your credit file.

Issue: Too many pay day loans could indicate that you are unable to live on your income each month.

Possible solution: If you’re struggling to pay money that you owe then it is probably wise not to apply for more finance. Talk to the companies that you owe money to and see if you can reduce your monthly outgoings. It may also be worth seeking independent advice from places like Citizens Advice or Money Advice Service.

Issue: Old accounts or unpaid bills that you may have forgotten about or have been taken out without your consent.

Possible solution: Make sure you’re aware of all old debts and accounts in your name – it’s not impossible for somebody, especially a family member or close friend, to open an account without your permission. If this happens any issues or missed payments will show on your credit file, not theirs. Make sure you’re aware of anything on your file by getting a free trial with a company such as Experian or Equifax.

Issue: You can’t afford to pay a company due to unforeseen circumstances.

Possible solution: It's important not to just bury your head in the sand. Contact the company you’ve not paid and they should work with you to come up with a solution that is right for you.

Things that do not show on your credit file:

  • household rent (private or council) – even if you pay all your rent on time it won’t show on your credit file so you need to prove you’re a good payer in another way,
  • TV Licence – you can opt to pay this by Direct Debit but this won’t show on your credit file,
  • insurance – whether it’s for your car, household goods or even mobile phone these won’t necessarily show up so don’t rely on them.

Although it may appear scary taking control of your credit score will benefit you in a lot of different ways. No matter how good you believe you are with money unless you have a credit file that backs this up, you’ll find it difficult to get credit. Start small with a current account and mobile phone contract and, once these are at a good level apply for a credit card with a low limit and a high interest rate. Unfortunately, if you have bad credit you have to pay higher interest fees – this is a reflection of your risk.

What not to do:

  • apply for a lot of finance in a short space of time as this may appear too eager and trigger automatic declines for some companies,
  • get a joint account with someone who has a bad credit rating as this will affect your rating, too,
  • lie to companies. They have a clear view of your credit file so when they ask if you’ve been in debt, bankrupt or received a court order, they’re checking to see if you’re trustworthy. Be as honest as possible by telling them the circumstances around your debt, you might be surprised with the results.

An example of a credit rating, as seen by lendersImage: an example of what a lender sees when looking at your credit file

Although it may appear scary taking control of your credit score will benefit you in a lot of different ways. No matter how good you believe you are with money unless you have a credit file that backs this up, you’ll find it difficult to get credit. Start small with a current account and mobile phone contract and, once these are at a good level apply for a credit card with a low limit and a high interest rate. Unfortunately, if you have bad credit you have to pay higher interest fees – this is a reflection of your risk.

More on Hire Purchase

Maintaining your credit file:

Once you understand your file and have taken steps to improve it you’ll need to know how to maintain a good credit file for the future. Take a look at the final installation of our blogs and videos.

Watch the next video


For more information or advice on debt or money worries visit one of the below websites for free impartial information:

Money Advice Service

Citizens Advice

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