Improve Your Credit Score

If you have a mortgage, credit cards and other unsecured loans then the various credit rating agencies know about you. Each month the information on your financial history is recorded and you are allocated a credit score and rating so that when you apply for new credit the new lender can either accept your application or decline it.

Here's our practical guide on how your credit score is built up and how to improve your rating. In the first instance the credit agencies record the amount of credit that is outstanding on any type of loan you have and how good you are at paying it back. You don't need to pay back the whole amount each month but your credit report if you have one or request it shows that you pay on time. And in reality that's the main parts they are looking at.

Of course if you keep applying for new credit cards or hold too many so your overall credit is very high against the amount of income you have then you may not be successful in obtaining any new loans. If you want to see what information is held against your name or your home address then you should contact one of the agencies for your file.

You can get a one off report through the post for £2 but it's better if you sign up to one of the monthly services so this is sent to you on a regular basis. If you have a low credit score and want to improve it then this may take many months and it depends on what needs to be improved.

For example if you fall behind with your mortgage or credit card payments and you are now able to pay on time then it may take six months or more to repair the damage that has ben done. Here are some of the main areas to focus upon.

Areas for Improvement

Of course sometimes the reports you get have incorrect information on them because your name is similar to someone else living at your current or previous address and their history has been combined with yours. There are three main credit agencies operating in the UK and they should all have similar information.

If you think there may be a problem if you have been turned down for a loan or credit card ask your bank or lender who they use (as they may hold different information and you want to see exactly what they are seeing). The main agencies are Transunion, Equifax and Experian. They generally use the middle score to work your loan application.

The scoring agencies credit check you on five different elements, these being :

• Your overall payment history - if you pay on time
• The total amount of debt outstanding - what you owe in total
• The time and length of your credit history - how long you have borrowed money
• The types of credit you are using - be it mortgage, loans or store cards etc
• The new credit you are requesting

The first two items will count towards at least 65% of your credit score so you need to get these in order to improve your credit score in the longer term.

Improving Your Score in the Longer Term

You should concentrate on the first two elements in the list above and here's some tips on improving each one.

• Improving Your payment history - If you hold many credit cards you may find it difficult to manage and long gone are the days where you can pay one card off with another. You always need to pay your bills on time and for credit scoring it only means paying the minium off each month (of course that won't pay the debt off but that is up to you). You need to pay something off each month so long as it is at least the minimum and this will provide some payment history for your file. Utility bills such as telephone, gas and electricity may also be bundled in here so just ensure you pay them on time.
• The total amount of debt outstanding - This will also show up with the total credit you have available. Some credit card and store card companies continually increase your credit limits even if you don't want them to. If you have a card that you don't use or one that has a low balance then close the account if that's possible for your circumstances. It's best just to have a few cards at your disposal for keeping on the positive side of the credit referencing agencies.
• Managing your credit and loans - Managing what you are able to use is the best policy. If you don't have any credit at all then you can apply for a basic bank account which issues a small amount of credit on a visa or mastercard. This is sometimes what people who have been through an IVA do because it starts to build up a history for them. Most of this is common sense but if you need advice speak to the citizen's advice in your local area who can help you get your situation under control.

  If you are in a poor or bad credit situation it may take many months to get it under control. Our main advice even if you have excellent credit is never to miss a month's payment on any bill your receive. Everything these days is recorded so there is no escape. If you need any additional help please seek professional advice because everyone can improve their credit score it just may take some time.