Need to improve your credit rating?

What is your credit score?

A credit score or credit rating is  not a fixed number. In fact, when someone talks about a credit score they are really talking about a certain lender’s criteria when assessing your credit card application and the criteria for that particular credit card.

The ’score’ or ‘rating’ is the lender credit scoring, or rating, the applicant. However, for the purpose of understanding, we shall talk about a credit score in the it is usually meant (even though it’s technically incorrect) because there are ways to help you score well in the eyes of a lender.

Understand what credit scoring is

Knowing what lenders look for when assessing credit card applications, and what information they have access to, gives you more opportunity to present yourself in the best light, financially speaking. Having a good credit score in the eyes of a lender means you’ll get a better financial product so it’s well worth ensuring your credit score is at it’s best.

What do lenders use credit ratings for?

• To decide whether to give you credit
• How much credit to give you
• To decide what interest rate to charge you for that financial product

What information does a lender use to cedit score an applicant?

• The information you provide on your application form (how long you’ve been in a job and at the same address, age, marital status – a middle aged, married person who has had the same job and address for a long time will fare the best)
• Information provided by a credit reference, or rating, agency (the main credit rating agencies in the UK are Equifax, Experian and Callcredit)
• Previous dealings you have had with the lender (a lender cannot access information about your dealings with other companies)

What information is in a credit rating report?

• Any previous CCJs or court action against you for a financial matter
• Details of other credit agreements you currently have
• Applications for information about you by other lenders (if you make several applications for credit in a short space of time this will go against your application)
• If you are a victim of identity theft, this will have a very detrimental effect on your credit rating so it is worth checking the information about you held by credit reference agencies (more on this below)

Can you repair credit score?

Even though you don’t have a fixed credit score, it is important to give yourself the best chance of having a good credit report score when a lender checks your report with a credit reference agency. Some things you can check immediately, others take a bit longer. It is important to know that lenders rate your credit score relating to how much profit you will make for them, it’s not all about how good a customer you are.

If you always pay up at the end of the month or rarely use your credit card, a lender won’t make huge profit so may reject your application. Lenders really like people who are always in debt but make their minimum payment every month. If your credit score isn’t so hot right now, there are many credit cards for low credit score applicants, but the interest rate on these are invariably higher than average (remember: shop around and research lenders) so becoming more attractive to lenders is key to getting the best credit card deals.

Improve your credit score:

• Check your credit score – you can find out the information held about you by the main credit reference agencies. This costs around £2 per check and you can check with all three. This enables you to correct any mistakes and find out if you have been a vicitm of identity theft
• Never miss a credit card payment (setting up a direct debit for the minimum payment is a very good idea, you can always make extra payments to your credit card to reduce interest payments)
• Make sure you’re registered to vote
• Don’t make numerous applications for credit (credit card applications, insurance, loans etc) in a short space of time. This will make lenders wary of you even if you have been successful in your other applications. However,  since the record of these applications is not held for a long time, simply leaving a gap between them ensures it doesn’t have a negative effect on your credit score
• Build up a credit score. If you have never had credit before, lenders have no idea what sort of a customer you’re likely to be and therefore be more likely to reject you. There’s an obvious catch 22 here, but a solid address history and steady employment helps a credit card application and gives you the chance to improve your credit score.

Don’t take a rejected credit card application personally, some lenders just won’t want to lend to you and because they don’t have to, getting rejected can sometimes feel unfair. The other side of that is that there are lenders who will. Just make sure you do your research to make sure you’re dealing with a reputable one. And only deal with lenders and financial advisers who are registered with the Financial Services Authority (FSA).