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Transforming your credit file can be life-changing. Not only are you likely to get greater peace of mind from knowing that what lenders see is positive but you’ll pay less for borrowing too. Even if you’ve had issues in the past that doesn’t need to prevent you from creating a brighter credit future. So, how do you do it?
Everyone in the UK has a credit file, which is essentially a collection of the most recent information about your current financial situation in terms of what lenders want to see. So, this could include your existing borrowings and will also show what you’ve borrowed in the past – including any issues such as defaults. You can access your credit file via one of the main credit rating agencies: Equifax, Experian, TransUnion.
Every hard search made by a lender when you submit a credit application will appear on your credit file. If you’re consistently being rejected for credit cards or loans then it makes sense to stop and take a break for at least six months before making any further applications. An alternative is to request any search a lender does is a ‘quotation search,’ as opposed to a full search of your file. This will identify whether you’re likely to be accepted, as well as the interest rate you’d be offered, but won’t leave a permanent mark.
Ideally, your current balances will be at 50% or less of the total amount you could potentially borrow. However, you can see an improvement in your credit profile even by reducing outstanding amounts a little. Spend a few months making repayments – and avoid re-spending what you pay off – and your credit file will be considerably improved.
It’s worth taking the time to go through your credit file to ensure that everything in there makes sense. If there are errors – for example, an incorrectly recorded default – they could negatively impact your ability to get approved for credit. It’s also important to ensure that you’re on the electoral roll, as this is the information that lenders will use to confirm your address details.
Financial associations can arise between you and anyone you’ve had a shared financial past with – it doesn’t have to be an ex-partner. For example, if you had a joint account with your previous housemates for bills when you lived together this could have created a financial association. If their credit is bad then this could affect your own credit file unless you break the link. You can do this by contacting a credit rating agency and requesting that they dissolve the connection between the two credit files.
This part of the process is not rocket science:
If you’re a tenant you can sign up to the Rental Exchange initiative. This effectively means that you make your rent payments to a third party called Credit Ladder. These are passed on to the landlord and Credit Ladder will report to Experian whether the payments were made on time. Those that are can contribute to improving your credit file.
These could be mobile phone accounts, old credit cards or store cards – if you’re not using them then it’s not a good idea to leave them open. You might be tempted to go on a spending spree if you have a bad day (if you’re that type of spender). You could also be leaving yourself vulnerable to fraud if you have open credit accounts that you’re not really monitoring. You may face resistance from a lender or services provider when trying to close accounts with them so you may need to be firm if you want to follow the closure of the account through.
If you want to apply for loans, credit cards, mortgages or guarantor loans, making improvements to your credit file could improve your chances of being approved, as well as enabling you to access better rates.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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