Avoid The Following Strategies
While the following methods can be tempting options when trying to repair your credit, they can often cause more harm than good. Stay away from the following:
Closing a line of credit that is already behind on payments
Closing a card thats behind on payments doesn’t eliminate the debt. In fact, it can lower your credit score by increasing your debt-to-credit ratio, also known as credit utilization percentage. This ratio represents the amount of credit you’re currently using divided by the total amount of credit you have available.
For example, if you have two credit cards, each with a maximum credit limit of $5,000, your total available credit is $10,000. Owing $3,000 on one card and $2,000 on the other would mean you’re using 50% of your total available credit.
To improve your credit score, experts recommend keeping your credit utilization under 30%. Following the example mentioned above, that would mean using only $3,000 or less per cycle.
If you close one of your credit cards instead of paying it, you’ll have less available credit. Creditors evaluate your debt-to-credit ratio when you apply for new cards or loans. If your ratio is over that threshold, they might classify you as a high-risk borrower, offer you less attractive interest rates or even deny you credit altogether.
Filing for bankruptcy
There are two types of bankruptcies available for individuals: Chapter 7 and Chapter 13. A third type, Chapter 11, is meant for businesses.
How Can I Improve My Credit Score
can influence a number of financial matters, such as your ability to successfully get loansand credit, as well as the terms you are offered if your application is successful.
However, they can also be affected by several factors â your repayment history, any currentdebt, and even if you are on the electoral register, could all impact your .
What Can You Afford To Borrow
The other factor is what you can afford. Any time you apply for credit the lender will look at how good you are with money and also whether you can afford the debt. Part of this calculation will depend on your income and part of it will depend on what debts you already owe as well as the cost of monthly repayments.
Since open but unused accounts can still be used, if you have access to, say, £500 on an old credit card, lenders will treat that as if you had £500 worth of debt.
So closing these accounts will effectively free up your borrowing capacity and if you are as credit worthy now as you were when you got the credit that should add to the amount you can potentially borrow.
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Remove Defaults County Court Judgments Or Bankruptcies
If youve undergone some form of court action, but it happened more than six years ago, this should no longer appear on your file. However, this is not always an automatic process.
Its therefore advisable to check with all three CRAs to ensure all record has been removed completely from your file.
If youve failed to make payments on an account with a bank, mobile phone or utility company, usually over a 3-6 month period, the lender will close your account. This is known as a default. A default can occur regardless of how much money you owe .
Defaults are recorded on your credit report and decrease your credit score, making it much harder for you to get credit in the future.
Some lenders will serve a default notice asking you to catch up with missing payments. Its vital to pay that amount immediately to avoid the default happening.
Unless a default was created in error, it will remain on your credit file for six years, regardless of whether you pay off that debt.
However, you should continue to make any remaining payments as the lender could go on to register a County Court Judgement against you.
County Court Judgment
In some instances of missed payment, the lender might bring a CCJ against you. If you pay what you owe within 30 days of the CCJ being issued, it should not appear on your credit file.
Reducing the impact of a CCJ or default payment
But if you are now able to make repayments, doing so will help improve your score again.
Disassociate Yourself From Your Ex
When you take out a joint mortgage or bank account, you become “financially linked” to the person you’ve taken it out with. If they have a bad credit rating, it could impact yours. If you have split up with your partner, husband or wife and/or the joint financial product you have taken out is no longer between you both, inform the credit reference agencies of your disassociation. If not, the other person’s financial dealings could still have an impact on your credit score.
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Does A Student Overdraft Affect Your Credit Score
A student overdraft will appear on your credit report, but it wont affect your credit score if youre careful with it.
If you do use your overdraft, its important to try pay this back in a timely manner and avoid going over your arranged overdraft limit. Going over your arranged overdraft limit on a regular basis may have a negative impact on your credit score and could signal to lenders youre struggling to manage your money.
If you dont use your student overdraft, itll still appear on your credit report, but will show a balance of 0.
What Is A Bad Credit Score
A bad credit score means you might find it more difficult to get credit. Thats because its an indication to lenders of problematic financial behaviour, such as a history of being late with, or entirely missing repayments.
The three CRAs each have a different number that they consider to be a bad credit score:
Experian below 721
0 to 560 is considered very poor
561 to 720, poor
TransUnion below 566
0 to 550 is considered very poor
551 to 565, poor
604 to 627, good
628 to 710, excellent
The key thing to remember is your credit score is a constantly changing thing that can modify with certain types of financial behaviour and can be improved.
If you’re in a lot of debt
If youre in real financial difficulty and in serious debt, improving your score should not be your priority – first you should get out of debt.
There is plenty of free, impartial help available to you from debt charities like StepChange. Theres no need to go it alone.
Register For The Electoral Roll
Registering on the electoral roll is an easy fix. Lenders want to check that you are who you say you are, and you live where you say you live. The way they do this is to check the information you have provided against what is on the electoral roll. Making sure they can quickly and easily verify that youre telling the truth can help your credit score.
Build Up A Credit History
Lenders will look at your previous credit information to decide if you’re a suitable candidate, and your history becomes even more important if you’re making a particularly hefty request . But, if you’ve never had a credit card, loan or overdraft you won’t have a credit history, and that could pose difficulties how will lenders know whether you’re a credit risk if they can’t evaluate your past performance? That means, if you want to secure that credit agreement, it’s worth establishing a positive credit history by taking out a credit card first and making a few small purchases each month. Doing so can prove your money management skills and can be a great way to build up your score, but of course, you’ll need to pay off the balance on that card in full each month .
Add To Your Credit Mix
An additional credit account in good standing may help your credit, particularly if it is a type of credit you don’t already have.
If you have only credit cards, consider getting a loan a can be a low-cost option. Check that the loan you’re considering adding reports to all three credit bureaus.
If you have only loans or have few credit cards, a new credit card may help. In addition to improving credit mix, it can reduce your overall credit utilization by providing more available credit.
Impact: Varies. Opening a loan account is likeliest to help someone with only credit cards and vice versa. And there’s more potential gain for people with few accounts or short credit histories.
Time commitment: Medium. Consider whether the time spent researching providers and applying is worth the potential lift to your score. Weigh what you’d pay in interest and fees, too, if you’re getting a loan or card strictly to improve your credit.
How fast it could work: Fast. As soon as the new account’s activity is reported to the credit bureaus, it can start to benefit you.
Someone with a low score is better positioned to quickly make gains than someone with a strong credit history. Paying bills on time and using less of your available credit limit on cards can raise your credit in as little as 30 days.
Where Can I See My Credit History
You can see your credit history using any of the three UK CRAs. Each CRA creates their own credit report based on the information they have access to. This means your report may vary from one CRA to another, depending on what information they hold on you.
You can get your free Experian Credit Score by signing up with us. To see your up-to-date Experian Credit Report, get personalised tips for improving your credit score, and benefit from report alerts and more, you can take out a paid subscription â this starts with a 30-day trial if youâre a new customer*. Alternatively, you can order your statutory credit report, which gives you a one-off copy either in print or online.
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Defaults On Your Credit History
Defaults are much worse for your credit score but they drop off after six years.
A previous article Paying a defaulted account and your credit score looked at this in detail. In summary:
- repaying a defaulted debt does NOT increase your credit score
- but many lenders are more likely to give your credit if you have repaid the defaults
- until the default drops off your file after 6 years, your credit record isnt going to get to be great
- starting to pay small amounts may not improve your score but could prevent a CCJ, which would be worse than a default.
Is There Anything Good On Your Credit File
Although credit scores tend to improve as time goes on because defaults drop off or bad things get older so they matter less its also important to have new, good marks being added.
If your credit record is basically a pile of old, bad marks your score is never going to be good. Even when they go completely, your credit record will just look thin, confirming your identity but not having anything positive to say.
This can feel a bit of a dilemma if you have just got yourself out of debt. Not only do you not want to go back into debt, but its going to be hard to get credit at a reasonable price.
Some things that can help:
- a mobile phone contract that will often be shown on your credit record
- consider getting a bad credit card, using it every month and repaying it in full every month, never leaving a balance. You have to be disciplined to do this! These cards can be dangerous, after a year a quarter of all new users have serious arrears.
- if you can save £20 or more every month, then look at LOQBOX.
Dont try to consolidate debt at a high rate. Avoid all high-cost loans, not just payday loans but the large long terms loans at 20% or more, including guarantor loans. These are very bad ways to try to improve your credit score.
High street mortgage lenders will rule you out with recent payday loans even if they are paid on time.
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Dispute Inaccurate Information On Your Credit Reports
Sometimes, your credit score might suffer because something wound up on your credit reports that shouldnt have been there. Of course, you wont know unless you check them.
Under normal circumstances, consumers are entitled by federal law to one free credit report every year from each of the credit bureaus Equifax, Experian and TransUnion accessible through annualcreditreport.com. However, during the coronavirus pandemic, the bureaus are allowing consumers to access their reports weekly through April 2021.
If you spot legitimate, incorrect information while reviewing your reports, such as accounts that arent yours, a name mix-up with another person or incorrectly reported payments, you can file a dispute. The Consumer Financial Protection Bureau, a federal agency responsible for protecting consumers and offering financial education, provides dispute instructions for each bureau.
Its worth taking a look at your reports, even if you have no reason to suspect there might be a problem. According to a report from the Consumer Financial Protection Bureau, 68% of credit or consumer reporting complaints received by the bureau in 2020 dealt with incorrect information on peoples credit reports.
How much will this action impact your credit score?
Whether your credit score changes and how much it changes depends on what you are disputing.
Always Pay Credit Back On Time
Its important to pay back any credit you have on time, every time. That includes loans, credit cards and mortgage repayments.
Consistently paying in full will have a positive effect on your credit score.
With credit card debt, paying the minimum amount each month is better than missing a payment. But doing it repeatedly will negatively impact your credit score as it suggests youre spending more than you earn.
If you have lots of smaller debts spread across a number of cards, consider consolidating them onto one 0% balance transfer card. This will stop the debt earning interest for a period, during which time you can pay it off.
In a similar way, a 0% money transfer card can help you consolidate personal loans.
Having just one bill to pay will make it easier to keep a close eye on your debt, making it easier to start reducing it. But it is vital to make those payments on time, every time.
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Get A Bank Account Before Moving
To make things simpler before moving to the UK, see if you can open a bank account for the UK in your home country, banks like Citibank and HSBC offer these services. Just be aware that this could cost you money to open an account internationally.
Allow at least one month before you leave to open one of these.
Check Your Credit Report And Correct Mistakes
These days, its worth checking your credit report at least once a month to make sure that the information it contains is correct and up to date.
With the rise in identity theft and millions of coronavirus-related payment holidays being processed, its a good idea to keep a frequent watch on the information being recorded in your credit report.
You should check the information each of the three main credit reference agencies have about you. You have the right to get your statutory credit report for free from these firms.
If you notice any mistakes, it’s important to get them rectified as soon as possible to ensure they arent dragging down your credit score unnecessarily and wont have any adverse effect on future credit applications.
You can do this by contacting the company that provided the incorrect information or the credit reference agency itself, which will investigate on your behalf.
How long will it take to correct mistakes on your credit report?
Correcting an error can be one of the fastest ways to change your score. By law, your credit report should be accurate. Lenders and CRAs have up to 28 days to respond to a dispute, but Experian says it usually resolves issues in less than two weeks.
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Why I Couldnt Get A Mobile Phone And How It Was Resolved
A couple of years ago I tried to get a phone on a contract and I was rejected! I couldnt understand why it was so I mentioned this to my boyfriend and hes like have you checked your credit score? I had not even considered that I needed a credit score to get a phone! I look at my credit score and it was fair but not good or excellent.
I spoke to my boyfriend again, hes like have you register to the Electoral Roll? Nope, I had not done and at the time had no idea it would affect my credit score so much. Off I go to apply to be on the Electoral Roll. Waited a couple of months for it to apply on the credit report but during this time I had been given a new work phone so I just switched over to that one for a while.
Year and a half later I try again! It fails yet again, no idea why! Since then I had applied for a credit card and I was enrolled to vote. I also had bills in my name for quite sometime , these were on direct debit and managing my credit lines well. I didnt check my credit score because I was trying to save money by not paying the fee with Experian as I had already completed the free trial.
Fast forward a couple of months I was trying to pay my credit card and the payments were failing. My bank calls me and asks me to confirm my details, but they kept failing. I had no idea what was going on, I was getting my birthday right, after all, its my birthday.
When the whole birthday sager settles down I reapply for the phone and it was successful.