Six months to improve your credit rating

If you believe everything in the news these days, it’s almost impossible to get a good deal on credit. Luckily, that’s just not true. If you have a good credit rating, you can still qualify for some great deals – whether you want a card, loan, mortgage or simply the right mobile airtime package. Follow these tips and you could see a real improvement to that all-important number.

Month 1

Understand credit ratings

When lenders decide whether to grant you credit and what interest to charge, they calculate your credit rating (also known as a credit score) to assess the likelihood that you will repay what you owe them. They do this by allocating a value to items from your application and your credit report – the personal history of your credit accounts, such as loans, cards and mortgages – and adding them up to get a single number. In general, the higher your score, the easier you’ll find it to get credit.

You don’t have a single credit rating, as every lender uses a different formula. Your credit score also changes over time, as your circumstances change – which is where these tips come in.

Check your credit report

It’s crucial that this is up to date and accurately reflects your circumstances, so lenders don’t turn you down unnecessarily or lend more than you can really afford to repay. Start by getting an overview of your credit accounts and how well you’re managing them. You can see your Experian credit report online with a 30-day free trial of the credit monitoring and ID fraud protection service CreditExpert.

It’s an urban myth that your credit rating suffers every time you look at your own report. In fact, checking your credit report regularly could help you to manage your finances better and build a better credit score.

Month 2

Register to vote at your current address

The electoral roll is used to confirm that you live where you say you do – you may lose points if you don’t appear and lenders may ask you to provide further proof of residence or even turn you down.

Set the record straight

If you find any discrepancies on your report, such as an account that is closed but is listed as open or a late payment that you know you made on time, get in touch with the relevant lender and explain the problem. Be prepared to provide proof and ask them to amend the entry.

Month 3

Give yourself some breathing space

Look for zero per cent balance transfers or spending deals on credit cards, which will give you some breathing space while you sort out your finances – but remember to save up the money to repay them when the introductory period is up.

Close unused accounts

Target unused accounts listed on your credit report and close them down. Lenders take into account the amount you could borrow when they decide what to offer you. Lower that total and you could increase your credit score.

Month 4

Make the most of savings on your mortgage

If you have a tracker mortgage that has benefited from the record lows in interest rates, now’s the time to consider whether paying off more of your home loan will leave you better off rather than using the surplus to repay other debts. Check first that you won’t be penalised for any early repayment.

Rationalise your borrowing

Get out your statements and work out which of your remaining accounts are costing you most in interest, then do your research to see if you can roll them up into a single, less expensive loan. If that’s not possible and you have spare cash, use it to pay off these debts first – you’ll be better off than if you keep the money in the bank and, as your balance falls, your credit rating could rise.

Month 5

Explain yourself

Past financial problems such as missed repayments stay on your credit report for at least three years, while IVAs and bankruptcies are there for a minimum of six years. If special circumstances explain why you got into trouble, you can ask to add a note of explanation that will be seen by lenders. For example, you might have had an accident and skipped a few repayments but have never had any problems before or since.

Sweep up your footprints

Every time you make an application for credit, the lender will search your credit report and leave a record known as a footprint. These stay on your credit report for 12 months and lots of these in a short space of time can make them fear that you’re desperate for money or even suspect that a fraud is being planned, so if you spot something listed as an application when you were only asking for a quotation, contact the lender and ask for it to be removed. When you want to know what kind of a deal you can get, be careful to ask for a quotation search that won’t count against you.

Month 6

Protect your ID

ID fraud is one of the fastest-growing crimes of the 21st century. It takes place when a criminal gets hold of enough of your personal data and impersonates you, take over your accounts, borrow money in your name – and trash your credit rating. When you check your credit report, look out for unfamiliar transactions or applications and tell the lender immediately if you think you’re a victim. The Home Office recommends this as an effective protection.

Update your relationships

One section of your credit report lists your financial associates – people with whom you have a financial relationship, such as a mortgage or joint credit card account. Lenders may check the credit reports of your financial associates when you apply for credit, as their situation could affect your ability to repay what you borrow, so it’s important to ensure that the list is up to date – or you could be penalised for someone else’s financial problems. It’s always best to close joint accounts when a relationship ends.

So how are you doing?

See whether you’ve boosted your credit rating by ordering your Experian Credit Score for £5.95 at any time when you check your Experian credit report with CreditExpert. It won’t be exactly the same as one calculated by a lender but it will demonstrate the impact of your credit history on your credit score and help you to track your progress.