Having a poor credit rating can make you feel a like a financial outcast – it can appear that banks, building societies or credit card providers don’t want to touch you with a bargepole.
But all’s not lost – you certainly aren’t the first person to end up with an adverse credit rating, and you sure as heck won’t be the last. And there are also ways in which you can mend your financial reputation, in order to make getting a loan or mortgage a possibility again. It certainly won’t happen overnight, but by taking a few simple measures, you can make yourself a credible prospect in the eyes of lenders.
Sort it out
First things first, address your current problems – if you have any. “Make sure all bad debts are caught up or paid off and that this is reflected on your credit report,” says James Jones, an expert at Experian, the credit check company. “Lenders tend to focus on your most recent credit behaviour so make sure any credit you continue to use is repaid promptly. “
Defaults and court judgments stay on your credit report for six years and will do serious damage to your credit rating. However, the effect is likely to diminish once they’re repaid and as they get older.
“If you want to repair your credit history, you’ve got to prove that you can now borrow responsibly. If you cut up all your credit cards and only use cash for your spending, it’ll be a long time before the banks really believe you’ve turned over a new leaf,”says Ed Bowsher, credit card expert at Lovemoney.com.
In this case, it’s a good idea to consider getting a credit card aimed at people with poor credit ratings. If you use the card for a few purchases and repay the balance in full each month you will start to collect positive credit history data which will slowly begin to counter any past problems. It's also possible to be a poor credit prospect if you've go no history of having debt and managing it. “If you have a poor credit rating, a ‘credit builder’ card is probably the only sort you can get and they can come with horrendously high interest rates – as much as 40 per cent,” says Ed. “But if you spend a manageable amount on the card, and pay off your full balance every month, you won’t be stung by any interest charges. You’ll also demonstrate to the banks that you’re now a prudent money manager, and your credit rating will gradually improve.”
Another option to boost your rating is by getting a mobile phone contract – but you might need to put down a deposit, and have an overdraft facility. “Manage these well and your credit history will benefit,” says Experian’s Jones.
Contrary to what you might think, the credit industry doesn’t see the world in purely black and white terms. If you’ve got into difficulties with good reason – redundancy, illness or the breakdown of a relationship – then think about adding a note to your credit report which explains this. You’re only human, after all.
Get on the electoral register
Not only does being on the electoral register give you the opportunity to vote, but it can help your credit rating, too. Lenders use this to confirm your name and address, and not being registered can damage your credit score.
Check your report regularly
Fixing your credit rating won’t be quick, but it's possible. “It’s a long, hard slog,”says Lovemoney.com’s Ed Bowsher. Makes sure that you keep regular tabs on your credit rating to see how you're doing. There are various services which allow you to do this, such as Experian and Equifax.