A good credit rating is essential if you want to borrow money.
If you’ve been bankrupt, have county court judgments against you or have defaulted on payments in the past, you’ll find it more difficult to obtain credit.
If you’re in that situation you’d probably have to go through the subprime market, where you’d be charged very high rates of interest as a high-risk borrower.
Experian and Equifax are the two main credit reference agencies used by lenders to research your credit status.
They check that your details are correct on the electoral register, whether you have any county court judgments against you, and generally how diligently you’ve paid your debts in the past. They can track your ‘electronic footprints’ every time you apply for or open a new form of credit.
These companies inform the lenders of their findings, often using a scoring system, but the lenders are the ones who make the decision as to whether you’re fit for credit or not.
If you’re turned down for credit the lender must give you an explanation for their decision
If you’re turned down for credit the lender must give you an explanation for their decision. You’re entitled under the Data Protection Act to see the report on your credit application.
There may have been errors you could rectify, or if it’s just plain poor you can see where you need to make some improvements.
This may not be a quick fix as bankruptcy details remain on your credit rating for up to six years, but generally speaking you should be able to improve your rating after about a year of good financial practice.
How to improve your rating
The first thing to do is to check that your details are correct on the electoral role and that you don’t make any mistakes when filling out credit application forms. Also check there aren’t any other mistakes on the file, like other people’s debts.
Pay your creditors on time. Tell them if you can’t meet a deadline for payment and catch up next month.
The reference agencies will send you your credit history for around £2.
If you see there was an old county court judgment against you or any other debt which was settled but is still shown as outstanding on your records you can have it amended.
Also, if you can justify a period of poor payments in your history they will put a ‘note of correction’ in their report to explain the reason.
The score the agencies give you doesn’t tell you much on its own. Equifax rates range from below 299, being very poor, to above 475, which is excellent.
To get a better picture you need to pay around £12 for a detailed report listing all your credit agreements.
One way to demonstrate good financial practice is to take out store cards and pay them off regularly. This will create a good history, but make sure you do pay them off or you’ll be lumbered with high interest on top.
A best mate co-signing for a credit card or loan with you might help you get your name cleared. All the same, you should cancel any credit cards you don’t need.
If you’ve been refused by one lender, don’t apply again before you’ve checked that you’re the sort of person a lender will accept. Remember, every time you make an application it shows up on your credit history and multiple applications can look dodgy.
It’s crazy, but you can also be rejected for credit if you’ve never before applied. If you’ve never had credit before, a potential lender can’t see any history showing that you’d be creditworthy.
