Credit card Guides

10 ways to fix your credit rating

Updated: Friday 25 November, 2011

By Martin Fagan

With Britain’s total personal debt topping £1.45trillion, debt has become an inevitable part of life. And as debt has become more acceptable, increasing numbers of people are finding themselves struggling with poor credit ratings.

While many people think that there’s nothing they can do to rectify their situation, there are practical steps that you can take to improve your credit rating.

• 1. Check your rating
• 2. Get on the Electoral Roll
• 3. Utility bills
• 4. Avoid hitting the borrowing limit on your cards
• 5. Cut your cards
• 6. Look secure
• 7. Don’t be late
• 8. Don’t be desperate...
• 9. Don’t even think about bankruptcy
• 10. Phone around

1. Check your rating

You can use a credit checking agency to see what’s on your credit file. For a basic fee they will tell you what is on your file, or for a higher amount, they will talk you through exactly what you need to do to resolve any issues that come up. Prices start from around £1. There are several agencies through which you can check your credit ratings report online.

Using a credit repair company isn’t advisable - you can get free or much cheaper advice elsewhere, so there’s no point paying for someone to do what you can do yourself.

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2. Get on the electoral roll

Signing up to the electoral roll not only allows you to vote in elections, it’s also used by credit reference agencies to check you are who you say you are and you live where you say you do. This means that, if a prospective lender can’t find you on the register, you’re likely to have difficulty getting a loan, a mortgage or even opening a bank account. Being on the electoral roll also establishes you’re settled at an address, which reassures lenders that you’re a good credit risk.

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3. Utility bills

Getting utility bills in your name shows that you not only have a fixed address - they can also be used as evidence that you’re paying your bills on time. With utilities bills, use direct debit whenever possible, as this ensures that you don’t miss any payments which can, in turn, compound your situation.

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4. Avoid hitting the borrowing limit on your cards

When assessing your creditworthiness, lenders will look at what is known as your “debt-to-available-credit ratio” - basically how much credit you have available to you and how you make use of it.

They use this as an indication of how responsible or reckless you are with what is, in effect, other people’s money. Depending on the credit ratings agency assessing your financial history, this could account for up to 30% of your final credit score.

If you have maxed out the borrowing limits of your various cards and overdraft and are applying for another credit card or a loan, this will ring alarm bells with potential creditors and you’re application is likely to be turned down.

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5. Cut your cards

As well as assessing your debt-to-available-credit ratio to see whether or not you’ve maxed out your available credit, lenders will also look at how much extra credit you have available to you. This will especially spook them. If you’re seeking a £5,000 loan but have the potential to borrow a further £5,000 on your existing cards, you could struggle to service £10,000 of debt and any potential lender might think another creditor will be ahead in the queue to get paid.

For this reason, you should ditch any credit cards that you don’t use. With so many people taking advantage of 0% balance transfer offers, lots of people now have two or three unused cards lying around. Closing the account will update your file and show that you have fewer cards. The same goes for dormant bank accounts, especially if they have an overdraft facility. It’s also a good idea to get in touch with a credit rating company to let them know when you’ve closed an account to ensure it’s been removed from your file.

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6. Look secure

When applying for credit, simple things like having a landline number can increase your chance of getting what you want, as it gives the impression of being secure. Making sure that you fill in your details properly on an application is also going to improve your chances of getting credit. Lenders are also encouraged that, as well as being on the electoral roll, you’ve lived at your current address for at least three years.

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7. Don’t be late

Make sure that you pay your existing bills on time. This doesn’t just apply to credit cards and loans - even things that you think of as amenities, like your gas, electricity and telephone bills are forms of credit. Not paying your bills on time shows up on your file and will damage your credit rating. Direct debit can ease the whole process, and you will usually save a couple of pounds on each bill by paying in this way.

Just make sure that you know when the money will come out and that there’s enough in your bank account to cover your bills, otherwise you will be charged by your bank for going over your agreed overdraft limit and that won’t do your credit rating any favours.

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8. Don’t be desperate...

...even if you are. Applying for six loans in a week simply shows companies that you’re in financial dire straits - a sign that you’re bad with money and that you might be a liability and a bad risk.

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9. Don't even think about bankruptcy

For many people drowning in an ocean of debt, bankruptcy looks like a much-needed lifeline they can reach for to pull themselves out of danger. But bankruptcy is not a soft option. Yes, bankruptcy discharges your debts; however, it leaves a negative mark on your credit report for seven to 10 years and legally you can’t usually remove a bankruptcy from your credit history any earlier than this.

Even if you discharge all your debts through bankruptcy and eventually become debt-free, most lenders will not lend to people who have bankruptcies listed in their credit histories, so rather than make you more credit worthy, it will have completely the opposite effect.

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10. Phone around

Britain’s huge consumer debt has given birth to a number of charities and organisations that offer free advice on getting out of debt and improving credit ratings.

Get in touch with the Consumer Credit Counselling Service (CCCS) on 0800 138 1111 or the National Debtline on 0808 808 4000.

But the UK personal debt problem has also given rise to a large number of debt counselling services that charge you a hefty fee for their help, so always make sure the advice you’re about to receive is free and that the organisation you have approached is either a government agency or a charity.

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Check your credit rating now.