If you’ve got bad credit, or you’ve been rejected for finance, we’ve put together a list of tips that can help you to improve your credit score so that you can try to get finance again in the future.
Each lender scores you differently, so this is more art than science. It is possible to improve your credit score over time, but MoneySavingExpert.com recommends the following tips to try and improve your credit score:
- “Check your credit file annually (or before a major application)”. Your credit reference files – held at Equifax, Experian and Callcredit – contain enormous amounts of data on you. Errors happen that can be bad for a major application, so check them regularly and go through them line by line looking for any errors. The information won’t necessarily be identical on each agencies file, so it may be worth checking with at least Experian and Equifax.
- “Register to vote”. This is an important one because if you’re not on the electoral roll it’s unlikely you’ll get any credit at all. Sign up at any time on gov.uk. If you’re not eligible to vote in the UK, you can send all three credit agencies a Proof of Residency – ask them to add a note on your file as this should help you get credit.
- This is a bit of an obvious one, but “Never miss or be late on any credit repayments”. Even if you’re struggling, try your best not to default or miss payments. Doing this even once or twice can lead to credit problems years from now. The defaults from the previous 12 months will have the biggest impact on your credit score, so if you’ve had a default, it could be worth waiting for up to a year so that the damage isn’t as bad.
- Your partner, or flatmate, could be affecting your credit score. If you have any joint financial product (joint bills, joint loans, joint bank accounts, etc) then the finance company can access their files as well as yours as part of assessing whether to accept you. It’s for this reason that if you split up with someone, or you move out of a flatshare, make sure you delink your finances from them. You can write to the credit agencies and ask for a notice of disassociation, this should stop their credit history from affecting yours in the future.
- “Check your addresses on old account”. If you had, for example, an old mobile phone contract that you don’t use anymore, but is listed as still active, check your address is your current one. Once again, check your credit file with the credit agencies and ensure your address is up to date on all your active accounts.
- Every time you apply for a credit product (credit card, contract mobile phone, car insurance paid annually, etc) it adds a footprint to your credit file for one year. Too many in a short space of time can make it look like you’re desperate for credit, and you may start getting rejected. Try to space out any applications if you can.
- “Use a credit card to build a credit history”. Credit scoring is all about trying to predict your future behaviour based on your past history. Those with poor credit history will score poorly, but if you are excellent with your finances, but have little credit history, you may also score poorly. You will need to build a decent, recent history to show that you can be responsible with your credit. One way to do this is to take out a credit rebuild card. These cards are notorious for having horrendous interest rates (as high as 35% APR), but they usually accept people with poor credit history. Then, set your card to be paid off in FULL each month by direct debit (so that you’re not borrowing any money, and won’t get charged interest) and don’t withdraw cash (which will have a fee). Spending just £50 per month on your credit rebuild card, and paying it off in full each month, should cause your credit score to improve. Leave it 12 months should make a noticeable difference.
- Don’t withdraw cash on a credit card. This is expensive to do anyway, because you’ll get charged a fee, and the interest rate is usually higher, but it also makes lenders think that you have poor money management skills.
- It might not always work, but if you apply for credit and you’re rejected, lenders are supposed to give you an explanation if you ask for one. That explanation might simply be “because you failed to meet our credit scoring requirements,” but sometimes you can get a much more informative response.
- “Stability counts”. Homeowners rather than renters, and those who are employed rather than self-employed, tend to be more readily accepted for credit. Being with the same employer, bank and current address for a while all help as well. If you have a number of job titles and phone numbers, try to use the same across all your applications. If you have a landline phone number, this can help an application as well as it should speed up security checks.
- Taking all of the above in to consideration – if you have something life changing coming up, it might be worth applying before that happens. Take, for example, maternity leave. A lender will always want to see that you’re earning money, so it may be worth applying for credit before you go on long term leave. Don’t lie on an application though, as this can seriously impact future applications if it gets flagged on your credit file.
- If you have access to too much credit, even if it isn’t used, it can be a problem for future applications. If you have unused credit / store cards, cancel them. This will lower your available credit and should help. It’s worth noting, however, that long-standing bank accounts with good credit histories are worth keeping as they can benefit your credit score. In other words, don’t go and cancel every credit card you have. Just cancels the unused ones and keep using the ones you already have in a responsible manner.
- “The amount of outstanding debt you have is part of the information lenders have access to”. If you have a lot of debt, it can hurt your credit file. Minimising your debt is a good strategy to improve your credit score. If you have any savings, that money is probably better used paying off your debts.
- If there are any unfair defaults or errors on your file, you can complain and fight to have it removed. It’s important to dispute things like this as they can cause you to be declined for credit. Complain to the lender that put it on your file – be formal, polite and to the point. Tell the company that you will take this to a Financial Ombudsman if it’s not removed. If that fails, add a notice of correction on your file explaining the problem – be concise and factual. Finally, complain to the Financial Ombudsman, they can adjudicate that the default is unfair and ask for all traces of it to be removed.
- “Paying for insurance monthly will affect your credit score”. If you decide to pay for insurance monthly, a ‘hard search’ will be carried out and this will affect your credit score. It’s much better to pay for the whole year up front.
If you want to see how bad credit can affect your application for a lease vehicle, click here.