Your credit report explained How to improve your credit rating

A person swiping a credit card

Using a credit card wisely could help you build a stronger credit history

If you’ve been turned down for credit or feel concerned that your credit history could stop you getting a credit card or loan, don’t despair. There are steps you can take to improve your credit rating.

As nobody has a single, universal credit rating or ‘score’, it’s important to emphasise that this is actually a matter of cleaning up your credit report. Alternatively, it may be a process of building up a credit history if you have never borrowed before.

1. Check your credit report and correct mistakes

Which? Money experts advise that you check your credit report at least once a year to make sure that the information it contains is correct.

If there are mistakes on your credit file, these could stop you getting credit when you need it – so it’s important to have errors corrected where they occur.

2. Get yourself on the electoral roll

If you’re not on the electoral roll, it’s likely you will find it very difficult to get credit – so it’s important to ensure you are registered to vote before applying for a loan or credit card.

Your local authority is likely to contact you once a year, prompting you to ensure that anyone eligible to vote in your household is on the electoral roll. However, you don’t have to wait for this reminder to drop through the letterbox: you can register to vote online at any time through the About My Vote website.

3. Think before applying for new credit

It’s important to be aware that making an application for credit is likely to leave a ‘footprint’ on your credit file, which will be visible to other lenders. If you’ve recently been turned down for credit, it’s unwise to apply for another credit card or loan immediately; this might spark a vicious cycle, causing other companies to assume you’re in financial difficulty and making them less inclined to lend to you.

You can also ask lenders to perform a ‘quotation search’ rather than a credit search when you are looking to take out new credit. This should prevent a footprint being left on your file and give you an idea of whether your application would be accepted, as well as what interest rate you’d be charged – but there is no guarantee your chosen lender will agree to doing this. Quotation searches are most frequently used for mortgage applications, particularly if you’re shopping around for the best deal.

In addition, applying for credit immediately after moving house or changing your job might mean you are less likely to be successful. Lenders like to see evidence of stability, and you will be asked how long you have been at your current job and address during the loan or credit card application process.

Therefore, if you know you need to borrow and have a big change coming up, it might make sense to apply for credit sooner rather than later.

4. Close old credit card accounts

Lenders will look not only at how much debt you are in, but at how much credit you have available, before agreeing to lend to you.

If you already have several credit cards with high limits, lenders may be reluctant to let you borrow more. This is because, if you went on a sudden spending spree, the amount of debt you are in could suddenly jump overnight – potentially leaving you at risk of failing to repay what you owe.

While it’s good to have a credit card or loan account you have repaid regularly on your file, having too much open credit is likely to count against you.

5. End financial associations with ex-partners

Cohabiting with or being married to someone with a bad credit rating won’t affect yours – but taking out a joint financial product with them will. Opening a joint current account, for example, will create a ‘financial association’ between two people, which is likely to affect the way potential lenders view both individuals.

If you have ever jointly held a financial product with someone you no longer have a relationship with, ensure that this is reflected by asking all three credit reference agencies to add a ‘notice of disassociation’ to your file.

6. Build a good credit history

Finally, to improve your chances of getting credit in the future it’s important to begin building a good credit history now. Showing that you can repay borrowing on time and stay within the credit limit you’ve been given will help convince lenders you are responsible.

This may be easier said than done if you’ve never borrowed money before; having no credit history at all could mean you have limited access to loans and credit cards – especially those with the cheapest rates.

In this instance you might find your only option is to borrow from your own bank, or take out a credit card with a very high interest rate. These are often marketed as ‘credit builder’ cards.

However, Which? experts warn that with APRs of up to 39.9%, credit cards like these should never be used for borrowing. Instead, users must ensure they pay off their balances in full every month in order to avoid expensive interest charges.

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