If you're struggling to borrow, find out how to improve your credit rating and with it your chances of getting accepted for better deals.
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Get on the electoral register
If you’re not already on the electoral roll, get on it.
The electoral roll is used by lenders to check that you live where you say you live.
It also bodes well if you’ve stayed at the same address for a number of years as lenders prefer stability. Registering on the electoral roll is free and enables you to vote and take part in jury service.
Get a bank account
If you don't already have one, apply for a current account.
If you've never had credit before, this can help you to build up a relationship with your bank, and once you've done that, your bank is more likely to offer you an account with an overdraft facility which, providing you keep within your limits, will help you collect some positive credit history.
Worried about the temptation of an overdraft? Apply for a basic bank account with no overdraft option.
Be aware that some basic bank accounts charge a monthly fee but you should be able to open a free one. And you should definitely not pay someone to open a bank account for you.
Your bank may then later be more willing to offer you a credit card or a loan.
Check your credit report
Before you apply for any credit, give your credit report the once-over. If you're worried about how much this might cost you, don't be.
There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion.
You can sign up for free 30-day trials of your credit report from Equifax or Experian. Just remember to cancel your membership before the 30-day trial period is up to avoid being charged in the future.
Experian offers a free credit score service too. It's fairly basic, telling you what your credit score is, what band it fits in and whether it's good or bad.
For a free ongoing Equifax score, ClearScore is a website and app that gives you your score and updates it every 30 days. It can coach you on ways to improve your credit score and offers personalised credit card and loan offers.
Using one of these services, you should still be checking your full credit report regularly to see if everything is up to date and accurate.
If there are any mistakes on your credit report, get them corrected. This could be an incorrect address or an account that is listed as being open when it’s closed.
You can do this by contacting providers and asking them to correct it. Alternatively, you can contact a credit reference agency and ask them to contact the provider on your behalf.
If you’ve already had credit in the past and perhaps missed a few payments due to illness or redundancy, you can also add a 200-word statement to the credit report to explain this.
This is called a ‘Notice of Correction' and it may help the lender to look more favourably upon you. You will need to contact a credit reference agency with the statement and ask them to put it in your report.
Close unwanted accounts
Did you know that the amount of credit you have available to you can also negatively impact your credit rating, even if you have no debt?
This is because lenders see you have the potential to borrow lots of money and get into debt, even if you never do. There's also a greater possibility of fraud, as in theory you won't be checking your statements regularly.
So if you have lots of bank accounts and credit cards you never use, close them.
Detach yourself from others
The people you live with won’t have any impact on your credit rating UNLESS you’re financially linked to them. So if you share a mortgage or a bank account with someone, your credit history will be connected.
Bear in mind, however, that this is still the case even if you DON’T live with them.
So if you have any ex-partners lurking about and you no longer want to be financially connected, make sure you detach yourself from any joint accounts or borrowings and check your credit report reflects this.
That way, future applications won’t be affected by whatever the other person is doing now.
Limit your applications
If you’ve been turned down for credit, don’t think that you’ll solve the problem by making lots of other applications – you won’t.
Every time you apply for credit it leaves a ‘footprint’ on your credit report and if lenders see a lot of these over a short period of time, they are less likely to want to lend to you as they may believe you’re overstretching yourself financially.
It’s far better to simply ask for a quotation to find out what kind of offer you might get, before ploughing ahead with an application.
Paying rent helps your credit rating
Paying rent can help build your credit profile – but you'll need to take action to make it happen.
Credit agency Experian has set up the Rental Exchange, where landlords can report a tenant's rent payments, which counts as a positive on their rental file.
Four in five tenants who have their rent reported would see an increase in their credit rating, Experian estimates.
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Soft searches: only apply for credit you can get
As you'll know, getting rejected for any kind of credit will only further harm your credit rating.
So when it comes time to apply for credit, you need to be confident you're going to be accepted.
Thankfully, a number of comparison sites will show you your chances of a successful application without harming your credit score.
Pay up on time
If you do get hold of credit, make sure you always pay up on time and keep within your credit limits.
There’s no point being offered a credit card, only to continually forget to pay off your bill or go well over your limit. If you do this, your credit rating will go down, not up, because you’ll be regarded as unreliable.
And that goes for your other bills too, from your mobile phone contract to your Council Tax. The more payments you miss, the further your credit rating will dip.
Finally, don’t forget to check your credit report on a regular basis to see where you stand and whether it's improving. Once it’s looking healthier, you’ll be able to apply for more credit.