Managing Your Cash Flow

Credit rating tips for beginners

3 min read

22 January 2014

In terms of your ability to borrow money, a poor credit rating can be a severe hindrance. Here are some steps to improve your rating.

The kind of things likely to affect your credit rating include defaulting on existing loans and mortgages or more serious matters like bankruptcy and county court orders. Simply missing repayments on credit cards or utility bills might also cause you to have problems if attempting to gain credit.

An indication of a bad credit rating is often given when an application for a credit card is declined. Unsuccessful applications are recorded and an accumulation of these is liable to decrease your credit rating further.

In such a position, the only kind of credit normally obtainable is via the “sub-prime” market. This is the market for loans given to borrowers seen to be at high risk of defaulting on repayments. This is reflected in high interest charged to the customer to offset the risk to the lender. After the financial crises of 2007 and 2008 there are few options in this market.

How can I find out my credit rating?

When an application is made to a bank for credit, the bank will ask credit reference agencies for some idea about your ability to pay the loan back. Your credit rating is based on the information credit reference agencies gather from your history – looking at how well you have paid bills on time, whether you have any court judgements against you. Any time you receive or apply for any form of credit, this will have been recorded.

However, the information held by credit reference agencies is also available to you, in the form of credit check services offered by these reference agencies. For example, the service offered by Experian CreditExpert includes a 30 day trial of their credit check, which allows you to see what is in your credit file (you will not be charged so long as you cancel the trial within 30 days).

How can I improve my rating?

There is plenty that can be done once you have seen your credit file to improve your credit score:

Ensuring that debts are registered to your correct (correctly spelt, in the correct order) name and current address and removing errors such as other peoples’ debts can be a help.

Avoid behaviour such as frenzied credit in short succession – including phone contracts as well as loans or credit cards.

Show your ability to borrow and repay money on time. This could be something like applying for a credit card, spending small amounts of money and then clearing the balance before interest is charged over a period of six months.

Adhere to already-existing repayments. If this becomes difficult try to negotiate smaller repayments rather than fall behind.

Having things like landline numbers rather than mobile phones as your recorded number, some indication of long term employment and loyalty to a particular bank are also taken as good signs by lenders.

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