How to improve your credit rating

What if you have a poor credit score?

A poor credit score can mean you’re charged higher interest rates, given a smaller credit limit or simply rejected outright.

A lender doesn’t have to give you the interest rate they are advertising or that you see in best buy tables on comparison websites. This is called the representative APR and it only has to be offered to just over half (51%) of people applying for the product. You may be offered an interest rate that’s higher – this is what’s called your personal APR. You should check carefully what your personal APR is.

Get a report on your credit rating

Three credit agencies have a statutory obligation to provide you with your credit report for £2, and you can access your report online or by asking for a written copy. Your statutory credit report shows a snapshot of your current credit history.

Callcredit, under the brand name Noddle, also offers free access to your credit report for life, so it’s worth just applying for this rather than paying for a statutory report. It is often worth getting a copy of your credit report from all three credit reference agencies if you’ve not applied for it before, or if you’ve not checked it for quite some time. That’s because different credit reference agencies may have credit information from different lenders (although there is quite a lot of overlap between them).

Use the links below to request your credit report:

You can get free 30-day trials of more comprehensive credit checking services from Experian and Equifax, which include your full credit report. However, you normally have to give your credit or debit card details when you sign up to the free trial and money will be taken from your account unless you cancel in time. You can look at your report as many times as you want for no charge during this free trial period.

Check your credit report thoroughly

Check there are no mistakes or that you haven’t missed any payments without realising it. You can check your credit report as often as you like and it won’t affect your credit rating or credit score.

How to report something that is wrong in your credit report

If you do spot any mistakes, challenge them by complaining to the credit reference agency. They have 28 days in which to remove the information or tell you why they don’t agree with you. During that time the ‘mistake’ will be marked as ‘disputed information’ and lenders are not allowed to rely on it when assessing your credit rating.

If there’s information on your file that’s accurate but doesn’t reflect your current situation – for example, you got into debt problems when you lost your job but you’re back in work now – you can add a ‘notice of correction’ to your credit report. This is a statement of up to 200 words about what happened.

To correct your credit report, visit the Information Commissioners website.

How to improve your credit rating in the short-term

If your credit score is poor or you have no history of borrowing for lenders to see, then there are immediate steps you can take to improve your credit score.

  • Repeatedly applying for credit and getting turned down can affect your credit report. This is because lenders will think you are desperate for money, and a bad risk to lend more to. So, stop applying for credit until you’ve sorted out any problems on your credit report and improved your credit score.
  • Get on the electoral register. If your name’s not on there, you’ll find it much harder to get credit. You can go onto the About My Vote website, and fill the form in online. You will then need to print and sign the form and send it to Electoral Services, Lichfield District Council, Frog Lane, Lichfield, WS13 6YY.
  • Cancel unused credit cards. This also reduces the chances you’ll fall victim to fraud if they were ever to be stolen.
  • If you have defaulted on credit agreements in the past, which normally means you’re three months in arrears, then this will really affect your credit rating.
  • Try negotiating with your lender and offer to pay all, or part, of the outstanding debt and see if they will remove the default from your credit report.

How to improve your credit rating in the long-term

If you’ve had debts, you must start to change your behaviour so you can show lenders that you can borrow responsibly. Over time, this will improve your credit score. Here’s some top tips:

1. Pay on time

Make sure you make repayments on time in future, and pay off your accounts early if you can. This demonstrates to lenders that you are a sensible borrower.

2. Get a credit-builder prepaid card

Some prepaid cards have a credit-building option built into them, that could help you to boost your credit score.

The way this works is you are loaned a small amount – for example £60 – by the prepaid card company. You then sign a credit agreement and agree to pay the card company £5 a month to repay your £60 ‘loan’.

At the end of the year, if you haven’t missed any payments, this will be recorded on your credit report as 12 months of successful repayments.

However, bear in mind that all prepaid cards charge fees. For example, you might pay £5 to get the card in the first place, 2.5% on everything you spend and an extra £1 fee whenever you top up. Visit the Which website to see which pre-paid cards you can choose from.

Credit-builder credit cards

If you have a poor credit history then there are credit-builder credit cards you can apply for.

Be aware that the interest rates charged are much higher than standard credit cards. Typically, you will be paying over 30% in interest a year, so you must make sure you pay off any balance in full each month. Otherwise you’ll get into debt that you may struggle to get out of and harm your credit score even further. The credit limit on this type of card is usually a maximum of £500.

Visit the Money Saving Expert website for advice on the best credit-builder credit cards.

Avoid expensive credit repair companies

You may see adverts from firms that claim to repair your credit rating. Most simply negotiate with any companies that have sought county court judgments (or decrees in Scotland) against you. Others claim they can do things that – legally – they can’t, and some may even encourage you to lie to the credit reference agencies. Don’t even consider using such firms.

There’s no reason you can’t improve your credit rating yourself, so there’s no point paying someone else to do it.