How to boost your credit rating to get the loan you want

Survey form on Blackboard tick placed in Excellent checkbox.
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Your credit rating is more than just a number - a bad score can stop you from getting a personal loan, mortgage or credit card or mean you end up on a more expensive deal.

In fact, new figures from Amigo Loans show that over 20 million people could be denied loans because of a less-than-perfect credit rating. Many of these rejections could be unfair; the research revealed that around a third of people who checked their report found errors.

Worryingly, only one in eight people have ever checked their credit report, meaning that many more mistakes could be left uncovered.

Banks consider a score of under 720 to be poor and their computers will automatically reject applicants with lower scores. The best rates on things like loans and credit cards are also reserved for those with perfect credit records so even if you have an ok score you might be offered a more expensive deal.

So improving your credit score could save you money. If your rating is in need of some TLC, here are a few things you can do.

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 CallCredit.

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.
You can also get lifetime access to your CallCredit credit report via its Noddle website.

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. On top of that, the service features a Credit Matcher which will tell you what financial products you're likely to be eligible for using a 'soft' search which won't affect your credit score.

Though this is a good starting point, 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 which 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.

Get a credit-builder style credit card

One way to rebuild your credit rating is by taking out a credit builder credit card. These are designed to help people who've had debt problems in the past.
They do have high interest rates, so you should make sure you're paying the balance off in full each month.

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.