There can be times in everyone’s life when they get in a muddle with their finances. Then the time comes when you apply for a new phone contract or energy supplier and are denied due to your credit score – arghh you think – where do I start ? Well, there are two main things you need to know: what is your credit score and how can you rebuild your credit score. It may sound daunting and all too scary but don’t worry it is more straightforward than you think. If you have just been missing a lot of payments and are just scatty then you should be able to vastly improve your credit in a year or two if you do all the right things.
What is a credit score ?
First off a Credit Score is the pattern of your credit payments over time, where there is a focus on the most recent information. Your Credit Score is important because it is used by lenders to decide whether to lend you money, how much to loan you and in some cases the level of interest your charged.
Why do I have a bad credit score?
If you don’t stick to the terms of your original credit agreement, information about this will appear on your credit score. This may be if you have made credit or loan repayments late or missed them altogether. These actions will adversely affect your credit score. Other actions that will lead to a bad credit score include, being declared bankrupt, entering into an Individual Voluntary Arrangement (IVA) or having a County Court Judgement (CCJ) made against you will badly affect your credit score. Even making the minimum repayment on your credit card each month can have an adverse effect on your credit score; where many lenders will assume you are struggling to manage your money.
Top Tips to rebuild your credit score
Review your Credit File
- Make sure your on the electoral register. If your names is not on the register you’ll find it much harder to get credit.
- Check your credit file at experian.co.uk and equifax.co.uk , both offer month–long free trials of their expensive (and overkill) credit monitoring services; so use those, view your files then cancel the trial.
- Make sure all your debts are registered to your correct name and current address
- Ensure there are no other mistakes on your file, such as other people’s debts or payments
- Cancel unused credit cards. This will reduce the chances you’ll become a victim to fraud if they are lost or stolen.
- Cut financial links with previous partners. If you have any joint financial products, such as a joint current account, they could influence the lender’s decision. You can ask all three credit reference agencies to add a ‘notice of disassociation’ to your file if you have cut financial ties with an ex.
Budget and live within your means
Prepare a monthly or weekly budget in advance. After you have calculated your regular incomings and essential outgoings, including repayments and savings. Then, consider the money that you have left over. You should ensure you can afford all your outgoings before you spend on treats. There are lots of articles on our site on money-saving such as Saving Money with voucher codes or 10 Ways to save money
Consider a loan or credit card to rebuild your credit score
You need to build a decent recent history to show that you can be responsible with credit and use it well. Taking out any form of credit will give you an opportunity to repay sensibly and rebuild your credit score. A credit rebuilding loan or a Payday Loan for Bad Credit can also be useful when you need emergency cash fast, for example, urgent home repairs.
- This type of loan product can be expensive due to the high-interest rates. The reason for higher interest rates is usually because the higher level of risk you represent to the lender due to your low credit score. You should make sure you can afford the repayments before you take out a loan as not paying on time will only make your credit score worse.
- Think carefully about applying for any line of credit. Remember that applying for too much credit, whether you are accepted or being rejected, will leave footprints on your file.
- There are alternatives to a loan that you could use, such as a credit rebuilder credit card.