Fix your credit rating in 2021

The importance of a good credit score

A good credit score can be difficult to get, and to maintain; particularly in the current financial climate, caused by the covid-19 pandemic.

That said, if there’s one thing that’ll help you to get your finances in order in 2021, it’s improving your credit rating – not so you can borrow on top of borrowing, but so that if you need to borrow, you’re more likely to be accepted and it costs you less.

What does a good credit score look like?

There isn’t a single finite score or element of your score that lenders use when they decide whether to offer you credit or not, and there’s no such thing as a credit blacklist.

Obviously, all lenders use one of the credit ratings agencies’ scores to discern whether you’re a responsible borrower, who’s likely to repay on time and in full or not. But, all of the lenders have their own system for deciding whether they’ll lend to you or not – so, you could have an excellent credit rating but still be rejected by a certain lender, whilst being accepted by another.

If you’ve got a low credit rating, then you’re more likely to be offered credit with higher interest rates, or even be turned down completely.

So, if you want to make 2021 the year that you sort your credit rating out, read on to find out our top tips for repairing your credit rating.

  1. Check your credit score regularly and correct mistakes

It’s definitely a good idea to keep a regular eye on your credit rating and make sure you know what it is.  Try to have a look at least once a month and make sure it’s correct and up to date.

The combination of a rise in cases of identity theft and the millions of covid-related payment holidays that are currently being processed, means you should keep a close eye on the information in your credit report, so you know where you stand in terms of payments being due to start again, and can identify it early if someone has stolen your details and identity and is taking out credit in your name.

You don’t have to pay either, you’ve got the right to get your statutory report for free from all of the main credit rating agencies.

If you do see any mistakes, or activity that you believe to be fraudulent, on your report then contact the company that provided the information, or the credit rating agency, who will investigate on your behalf.

Correcting an error can be one of the quickest ways to improve your credit score. All of the agencies are legally required to ensure that your report is accurate; lenders and credit reference agencies have up to 28 days to respond to a dispute, but Experian will usually resolve issues within two weeks.

  1. Register to vote

The electoral roll is used by lenders to confirm that you live at the address you’ve given to them in your application for credit. If you’re not on the electoral roll, and lenders can’t confirm your address, you might find you struggle, or are unable, to get credit.

You can register to vote online here, it only takes a couple of minutes. Experian, the UK’s largest Credit Reference Agency, says that being on the electoral register can boost your credit rating by as much as 50 points.

And, as councils send their electoral data to the credit reference agencies every month, registering to vote – if you haven’t already – can improve your score within as little as six to eight weeks.

  1. If you’re renting, make your rental payments count

It’s often the case that tenants in rental properties pay higher monthly payments than homeowners do towards their mortgage but, can still find it difficult to prove they’re capable of borrowing and repaying loans and mortgages.

However, you can now use a rent reporting platform to record your regular rent payments and ensure they’re included in, and resultantly – and indeed, importantly – improve, your credit report.

If you’re a council or social housing tenant, you can ask your landlord to report your rental payments to a free scheme called The Rental Exchange. If you’re a private tenant you can ask your landlord or estate agent to use The Rental Exchange, as well. Or, you can self-report using CreditLadder – which reports to both Equifax and Experian.

  1. Use ‘soft searches’ for new credit and avoid multiple applications

If you’re applying for credit, ask your lender to run a ‘soft search’ – which should give them a pretty clear idea of whether you’ll qualify for the loan you’re asking for – to see if you’ll be accepted, before they run a ‘hard search’.

Why?

Because all hard searches will leave a footprint in your credit file that other lenders will be able to see – and if they see an application that’s been refused, alarm bells will ring, meaning they may be more likely to refuse you as well.

Asking any prospective lenders to perform soft searches won’t actually improve your credit rating, but it will help to protect it.

In addition, if you have been refused credit after a hard search has been performed on your credit file, try not to make another application for at least six months; multiple applications over a short space of time will indicate to any potential creditors that you’re in financial difficulty.

  1. Don’t use all of your available credit

If you’re applying for credit, your lender won’t just look at your outstanding balances in their risk assessment, they’ll also look at how much of your existing available credit you’ve used.

If you’re using most of the credit you have available, then lenders are likely to see this as a sign that you’re struggling to manage your finances and can potentially reject applications you make as a result.

According to Experian, borrowing 90% of your available credit can knock 50 points off your credit rating. Whereas, borrowing 30% or less can give you an additional 90 points on your score.

  1. End financial associations with exes

Merely living with, or being married to, someone with bad credit won’t affect your credit rating, but if you have any joint financial products with them, that will.

Whether this be a mortgage, a joint account, or any other type of joint financial product, it will create a ‘financial association’ between you and the other person named on the account.

Meaning, that if you should apply for credit in the future, lenders could look not only at your credit rating, but at theirs too, as their circumstances could affect your ability to make repayments.

So, if you have held any joint accounts with ex partners, ask all the credit rating agencies to break this link so their financial circumstances are no longer connected to yours.

  1. Pay more than your minimum payments (if you can)

If you’re only paying your minimum repayments on your credit card(s) every month, then potential creditors could take the view that you’re struggling to clear your debts – not a good opinion for them to have if they’re considering whether to lend to you.

Try to pay off more than the minimum every month, it will look better to prospective lenders and help you to get out of debt more quickly.

  1. Don’t miss repayments

Late debt repayments will usually show up on your credit report within a month or so and just one late or missed payment can impact your credit score by up to 130 points, according to Experian.

Paying on time and remaining within your credit limit will help to show any potential creditors that you’re a responsible borrower and can repay what you owe.

If your debts are becoming problem debts and you’re struggling to repay them, inform your creditors as quickly as you can. It’s better to ask for help than to repeatedly miss repayments.

Missed payments will stay on your credit file for six years. Their effects will lessen as time goes by, though. If you miss one payment, your credit rating will likely begin to improve again after around six months and you should be back to where you were before missing the payment after around a year – assuming you don’t miss any more.

If you’re struggling to meet your payments, free and confidential debt advice could help you to decide on a solution that will get you back in control of your finances.

  1. Try to avoid CCJs

Having County Court Judgements made against you will seriously impact your credit rating.

Experian tells us that the receipt of a CCJ will reduce your credit score by 250 points. Whereas defaulting on an account will reduce your score by 350.

It will generally take six years for CCJs to disappear from your credit file. After that, you should see an instant change to your score.

If you’re in financial difficulty, it’s important to get debt advice to see if there are any alternatives available to you that can get you back in control of your finances.

  1. Use a credit building credit card

It’s an inescapable fact that as credit building (or rebuilding) credit cards are aimed at high risk customers, they usually come with very high APRs.

That said, they are specifically designed to help you to build (or rebuild) your credit score. So, if you’ve never borrowed money before and are trying to build your credit rating or are looking to rebuild your credit rating after historic transgressions, then this could be an option that’s worth considering.

How quickly can you improve your credit rating?

Ever heard the story of the hare and the tortoise?

Slow and steady wins the race when it comes to rebuilding your credit rating. There are things you can do that will implement a change quite quickly, but as we’ve discussed, credit scores are built from a variety of different factors. So, there might be a number of areas you have to improve to see a gradual improvement in your score.

If you’re struggling financially and want to explore the options that are available that could hep you to get back in control of your finances, then complete our quick online form and one of our advisers will give you a call, at a time that’s convenient to you, to discuss your options, provide free advice, and try to help you to get back on the road to financial freedom.