Getting a mortgage, credit card or personal loan can be tough, and, whether you like it or not, your previous behaviour can affect how attractive you are to lenders. Banks, building societies and credit card companies are sometimes picky about who they give money too, and they will often only approve those with a near perfect record.
However, it's not all doom and gloom – there are plenty of things that you can do to make a difference and encourage lenders to look on your application more favourably. Here are our top tips.
Why improve your credit rating?
Quite simply, a poor credit rating can limit your options. It will make you more likely to be rejected by lenders, which in turn makes you more likely to be rejected in the future. With an improved economic outlook, falling unemployment and increased confidence resulting in recovery in the property market, addressing your credit rating now could make a big difference when it comes to applying for a mortgage.
Ensure there are no mistakes on your file
When you send off an application, lenders will check your credit file and the information it contains may influence their decision. Even if you feel confident that you have a good credit history, you should regularly check this file to make sure it's accurate and up-to-date.
Features such as your financial association with others can have a big impact. If you've ever had a joint bank account or loan, the other person's credit score may be dragging yours down. Make sure you cancel any financial relationship with an ex-partner using a dissociation form. This will prevent their credit rating having an effect on yours.
In particular, you need to check that your details aren’t being use by a third party for identity theft. If you spot any discrepancies, let the relevant lenders known as soon as possible.
Don't make too many applications in quick succession
Applying for too many loans in quick succession makes you look like one thing – desperate. Every time you apply for credit it will show as a record on your credit report, so it's better to space applications out as much as possible.
If you just want to compare rates, ask the lender if they can register it as a ‘quotation search’ on your credit report rather than as a ‘credit application search’. This makes it clear to future lenders that this doesn't represent an actual credit application, and will be more beneficial for your credit rating.
Make sure you keep up with repayments
This is one of the most obvious steps to take when you're trying to improve your credit rating. High levels of existing debt, and missing or making late repayments on anything from your mortgage to your electricity bill, will stay on your file for 6 years and are a massive red flag to potential lenders. If you're struggling to find the money, make sure you speak to the relevant company to see if there is a different repayment plan you could be on.
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Create a Credit History
It may seem ironic, but if you've never borrowed money before, businesses may be less inclined to lend to you. It's important for lenders to see that you can handle credit responsibly and keep up with repayments. If it's the first time you've borrowed a large amount of money, consider getting a credit card around six months in advance. You will, of course, need to make sure you pay off the balance in full every month, to avoid paying interest and prove that you're a reliable investment.
Registering for the Electoral Register
Registering for the electoral register is the simplest way in which you can improve your credit rating. Electoral registration forms are sent to homeowners between July and November and the register is published on the 1st December each year. If you don't want your details to be publicly available, you can opt out of the edited register and only appear in the full register.
By summer 2014, Individual Electoral Registration will come into force, meaning that people will be able to register individually online.
Improving your credit rating is an important investment in your future, which can make all the difference when you want to borrow money. Lenders frequently refer to credit files to help them make decisions about applications, so making sure that yours is in the best shape possible is a no brainer.