Improving Your Credit Rating

By MoneyhighStreet Staff. Published on November 7, 2006 This post currently has no comments.

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If you have a bad credit rating it can make it more difficult to get loans, credit cards, and mortgages, especially from high street lenders. However there is hope as there are some steps you can take to improve your credit rating, as long as you don't have too many large out standing debts.

If you do have outstanding debt and it is manageable then you will first need to pay this off, by paying off your debts and sticking to payment schedules provided by your lenders you may actually have started to improve your credit rating already. However if you have missed payments or defaulted in the past then this may not be possible. If you are finding your debt unmanageable then you may wish to consider seeking debt management, taking out a debt consolidation loan, or in more extreme cases filing for an IVA (individual voluntary agreement).

Once you have cleared large debts you can then think about taking steps to actually improve your credit rating. The first thing you may want to do is to check how bad your credit rating actually is. You can do this by going to one of the credit reference agencies websites such as Credit Expert, where you can check your credit rating for free.

The credit reference agencies are what prospective lenders use on a regular basis when deciding whether or not to give you credit. Your credit report consists mainly of 3 main elements:

Your National Credit Score: A number ranging from 0-1000 - a higher score generally indicates that lenders will consider it less risky to grant you credit
Your National Credit Score category which will be excellent, good, fair, poor or very poor
Credit searches carried out against your name

Other factors are checked by some lenders depending on the nature of the credit you are applying for, such as how often you have moved in the last 3 years and how many applications for credit you have made recently, try to keep these factors to a minimum if you are intending to apply for credit.

When you know exactly how bad your credit rating is you can then take steps to improve it. Generally the way to improve your credit rating is to actually go out and get credit. This may sound strange but when you have a bad credit rating it basically restricts you from getting credit from high street lenders, major credit card companies, and from obtaining the best interest rates. There is likely to still be some companies out there who will still lend to you, all be it at undesirable rates.

Using these higher rate companies you should apply for credit cards or loans and borrow manageable amounts. The idea is to then pay back these manageable amounts to start giving yourself a positive credit history. In the case of credit cards you should try and repeatedly pay back more than the minimum amount or ideally the balance in full, repeating this process you can start to quickly rebuild you credit rating. Store cards and cards like Vanquish and Capital One can be useful for this.

If you take out a loan you should make a special effort to complete the full term of the loan without missing or being late with a single repayment, again for the purposes of giving your self a positive credit history. Secured loans can often have lower interest rates than unsecured types, however you need to be aware of the risk that you could lose your home if you do not keep up with repayments.

You need to ensure that when you are rebuilding your credit history in this manner that the companies you are borrowing from do actually report to the credit reference agencies or you will be wasting your time, and money.

Once you have started building your positive credit history after while it will eventually be possible to move your balances to more reputable credit card companies that have better rates, remembering to always pay above the minimum amounts. After a while (possibly years depending on how bad you credit rating is) your negative credit history will start to fade out and your credit score will start to improve.

It is advisable to periodically check your credit rating to see how you are doing and to make sure that the steps you are taking are working.

When you have successfully improved your credit rating you will find it a lot easier to obtain credit again. This should not mean that you go out and borrow money and take on masses of debt all over again. Borrowing responsibly and with in your means will ensure that your credit rating stays positive. Remember the reasons why you got bad credit in the first place, it takes a lot longer to rebuild your credit history than it does to damage it.

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