When applying for financial products such as mortgages, credit cards, auto loans and similar facilities, having a good credit rating gives you an upper hand in getting accepted. Therefore, it is imperative that you first know your credit rating and then work towards improving it.
It doesn’t matter whether you have no credit history at all, or you’ve recently been turned down by a lender, monitoring your credit is part of a personal financial journey that you must be willing to travel. To start you off, here are 5 steps to help you fix your bad credit.
Find Out Your Current Score
The first step to repairing your bad credit is to establish where you stand in terms of your credit score. In the UK, consumers have a statutory right to access a free copy of their credit report annually from at least the three major credit reference agencies (CRA)- Equifax, TransUnion, and Experian.
Depending on the CRA you request your report from, the scores will vary. Here is a snapshot of what to expect from each of the agencies.
Experian scores range from 0-999 and are categorised as follows.
- 961 – 999: Excellent
- 881 – 960: Good
- 721 – 880: Fair
- 561 – 720: Poor
- 0 – 560: Very Poor
Equifax has categorised its scores ranging from 0-700
- 466-700: Excellent
- 420-465: Good
- 380-419: Fair
- 280—379: Poor
- 0—279: Very poor
Formerly known as Callcredit, TransUnion is the second-largest CRA in the UK. Its scores range from 0-710 and are grouped as follows.
- 628-710: Excellent
- 604-627: Good
- 566-603: Fair
- 551–565: Poor
- 0–550: Very poor
You can visit the official websites of the above credit reference agencies and request your credit report. The report will be available almost instantly for you to view online, download or fill an application to have it mailed to you via post.
Check Your Report for Errors
Credit reports are generally considered an accurate reflection of your financial status. Having said that, it is not unheard of to find errors and misinformation. Therefore, you need to go through your report carefully and look out for any of the following typical errors.
- Personal Information: Check for errors in your name and address. This is especially the case if you’ve moved from your previous address or you’ve changed your name.
- Account Details: Check that each account appearing on your report is yours. Also, confirm the balances on the accounts and the credit limits for accuracy.
- Mistaken Accounts: Check that accounts do not appear more than once on the report and that all of them bear your name. You may be a victim of identity theft in which case you need to report such an incident faster for resolution.
- Account reporting errors: Confirm that no closed accounts are reported as being open or timely payments recorded as late payments.
If you find an error, send a Notice of Correction, a 200-word statement to the credit reference agency stating the error in question and why it should not appear on your report. Once resolved, your score will reflect a higher mark than previously indicated.
Pay Your Bills on Time.
Stop the bleed by ensuring that you pay all bills as they fall due. Scoring models use complex statistical analysis to assign weights to late bill payments thus pulling down your scores. Traditionally, these models considered credit bills such as credit cards and instalment loans.
However, this has changed and now utility bills such as gas, water, and electricity bills are factored in the calculation of your score. It is important to note that not every instance of bill payment delay is reported to CRAs. Generally, utility companies would report delinquent accounts which are amounts that are outstanding 30 days after falling due.
Through innovative products such as Experian Boost, payments like Council Tax payments, rent, digital subscriptions, and utility bills are reported to CRAs. If you make timely payments, this will give you a boost.
Keep Your Credit Utilisation Low
Whether it is credit card debt, auto loan, student loan or mortgage, plan to pay it off bit by bit until you finish it.
As you begin paying off your debt, your credit utilisation limit will gradually go down. Credit utilisation refers to the fraction of your total credit that you are using. After payment history, credit utilisation takes a prominent share of your credit scoring.
As a rule of thumb, you need to keep your utilisation at or below 30%. Research shows a strong correlation between high credit scores-750 and above, and low credit utilisation rate. Finding your credit utilisation rate is as simple as adding your total balance on your cards and dividing by the total credit limit.
For instance, if your card total is £4,000 and your credit limit is £20,000, your credit utilisation rate will be £4,000/ £20,000 which gives you 20%. Beware of the factors that can impact your credit utilisation rate which includes the credit card balance, opening and closing of accounts, and the credit limit on your accounts.
In case you need urgent cash, and your credit utilisation rate is already high, consider applying for instant guarantor loans. These loans are approved within 24 hours, have flexible payments, and you can borrow up to £15,000. Just ensure you get someone to co-sign the loan and you will be good to go!
Check That You Are Not Linked To Someone Else’s History
If a person is registered to vote at your address, they may appear on your credit report. Similarly, if you took a joint loan such as a mortgage with another person, lenders may use the linkage to decide whether to approve your loan application or not.
In case you were linked because of a past obligation and now you no longer have anything tying you with the other person, consider asking the CRA to remove their records from your report. This will improve your score and put you in a much better financial position.
Your credit score plays a key role in how lenders perceive you and paints a picture of your creditworthiness. Therefore, you must monitor your credit and ensure that it accurately reflects your circumstances. Make it a habit to request your report regularly, check it out and file a Notice of Correction where applicable.
Also, ensure you pay your bills on time, keep your credit utilisation low and check that you are not linked to someone else. There are other tips out there but the five discussed above will start you off on a good footing.