A few simple steps can boost your credit rating

This could be more important than you think. Even if you don’t want a loan or a mortgage, credit records are checked these days by companies such as mobile phone firms, energy suppliers and catalogue retailers.

Can I get someone to fix my credit record for me?

Before we go any further, let me emphasise that you should avoid any company that claims it can “clean” your credit record if you have had problems with credit in the past.

This claim is 99% hogwash and a waste of money. The other 1% of the claim that you can give yourself a better credit score may be true, but you can do this yourself. So now we’ve got that out of the way, let’s see what really can be achieved.

Your first task is to understand how credit scoring works

Last month we looked at some of the issues around credit scoring, but it’s worth remembering these simple facts.

1. There is no such thing as a single credit score and no credit reference agency can “blacklist” you.

2. Financial companies supply to the credit reference agencies information about how much credit you have, which companies you have it with and whether you are up to date with payments.

3. From this information other lenders can get a picture of the sort of customer you are and whether they want to do business with you. They compile the “score” from the data available and make the decision on whether or not to lend.

4. While having a “good” credit score is usually a “good” thing, that is not always the case. Some companies specialise in “sub-prime” lending because people with a poor credit history tend to pay a higher rate of interest and they can make more money out of them. If you pay your bills in full every month, these firms may feel they won’t make any money out of you and could well turn you down. It’s nothing to do with you and nothing to worry about, it’s just business.

Savings and income don’t appear on your record

Likewise, even if you have pots of money in the bank and have never borrowed, or all the family accounts are in your husband’s name, you may still be turned down for credit because you don’t actually have a credit record at all. Savings and other assets don’t show up on your credit record, because it’s all about debt and how you handle it.

Perhaps surprisingly, even if you have disclosed your salary or other income sources recently to a lender, they don’t appear on your credit record. You may however be asked to state them on any further application for credit as the lender will need to assess your ability to repay..

Where you live may affect how much you can borrow

While the lenders cannot use the credit history of anyone not financially connected to you who has lived at your address (such as previous occupants), and they are not allowed to use “redlining” – the practice of refusing credit to people who live in a particular area – they may use your postcode to “identify the risk of lending to customers who are living in areas that have high levels of over-indebtedness”. This may mean you don’t get the loan you want if you live in a less affluent area.

What to do if you are refused credit

Don’t keep on applying. Whenever an organisation carries out a search on your information, a record of this is left behind – a footprint – for a year, after which it is removed.

While refusals aren’t actually recorded, numerous applications could look like an indication of multiple refusals, making you seem a bad credit risk even if you are not. If you are refused credit, ask for a copy of your credit record from each of the three credit reference agencies (see this article for details how to do this). You need to apply to all three because different financial companies use different agencies.

You should, in any case, always check your credit record before taking out a large loan such as a mortgage, as it is essential you correct any mistake before an unwarranted refusal takes place.

By the way, looking at your own report does not leave a “footprint” in the same way as when a financial company does it, so you don’t need to worry about how many checks you yourself make.

What to do if you find a mistake

There are various actions you can take, depending on what the error is.

1. If there is a mistake made by the bank – such as not registering the settlement of an overdue payment – contact the bank and get them to correct it.

2. You can alternatively raise a dispute with the credit reference agency. This should get a factual mistake, such whether your name and address appear on the electoral roll, amended, but where there is a dispute about a debt being due or settled, the agency probably won’t change the entry. It should however mark the data as disputed or unreliable until it can make further checks with relevant parties.

3. If you don’t agree with the outcome of any dispute, you can add a note of up to 200 words to your credit report to give your side of the story.

What can you do to improve your credit score?

1. Ensure you are on the electoral roll. Most financial companies will use it to crosscheck your address.

2. A landline phone may give you positive points on your credit record. Landline phones tend to indicate stability of residence, although less so than in the past now that mobiles are so popular.

3. Make sure that all your payments are up to date. If you have any debts outstanding, clear them. Although late payments may be registered as such, that’s still better than leaving a debt outstanding.

4. If you have had County Count Judgments made against you, make sure these show as settled.

Divorced or separated?

If you have severed all ties with a spendthrift ex, make sure his or her credit record isn’t still damaging yours. You can ask for a “notice of disassociation” to be entered on your record to indicate that you are no longer financially connected. Of course if you still have joint accounts and financial obligations, such as a joint mortgage, you may not be able to do this even if your ex has moved out.

If you have late payments recorded against you, and you have a good reason for getting behind with bills because of sickness, unemployment or family issues, talk to your creditors and see if they will revise your record when the debt is cleared. If they won’t or can’t, you can add up to 200 words of explanation for anyone considering offering you credit in future to read.

What else can I do to improve my situation?

1. If you can’t get the credit card you want, get one that you can. The bank where you have your current account may be prepared to offer you a card because it knows you and your spending habits.

2. Accept a card with a low credit limit - and use it. Lenders want to see that you pay your bills regularly and on time. There’s no point leaving your credit card in your sock drawer.

3. Opt for a card aimed at people with impaired credit. The interest rate may be massive, but it won’t bother you if you pay your bill in full each month – and you will be proving that you can handle credit responsibly.

4. Cancel cards that you don’t use any more. Lenders are under an obligation to “lend responsibly”. If you have existing cards with credit limits that you don’t use, a new lender may feel that you have too many lines of credit open and turn you down.

5. When shopping around for loans or credit cards say you are seeking an “agreement in principle” or ask for a “quotation search”. That will allow multiple lenders to work out the interest rate they are willing to lend to you at, but they will save a full search until you are closer to signing the loan agreement, so the multiple checks won’t damage your record.