How to rebuild your credit rating
Written by Darren Beach on 27 March 2015
Rebuild your credit rating after being in debt.
If you’re recovering from being in debt, then building up your credit rating is one of the key factors in helping you get your finances back on track.
A good place to start dealing with debt – both to prevent it and to recover from it – is to check what’s on your credit report. The data and information held there summarises your credit history, so it can be well worth reviewing it on a regular basis, and making sure it provides an accurate and up-to-date picture of your credit history.
Some quick tips to rebuild your credit rating and get back on track:
- Don’t be tempted to skip repayments on cards or loans you have, as late or missed repayments stay on your credit report for at least six years.
- If you’re looking for new credit, or if you’ve been refused credit, don’t make several more credit applications close together in a short period of time. To a lender, this might set off alarm bells that you desperately need credit, or maybe suspect a fraud, as each application is recorded on your credit report.
- Register to vote, as getting on the electoral roll proves that you are who you are, and live where you say you do. You can do this even if you live with your parents, or share student digs.
- Build it up slowly – smaller forms of credit, like a mobile phone contract or a credit card with a low limit, can be easier to be accepted for and also show that you can pay bills responsibly and on time each month. Be careful though – they can sometimes come with higher interest rates and you shouldn’t take out something that you can’t repay.
- Get a copy of your Experian Credit Report – it will list any debts run up over the past six years shared with Experian, along with the identity of the current debt owners. You can then make contact with the various lenders involved to agree repayment plans.
What can your credit report do for you?
When you apply for credit, lenders like to see some evidence that you’ve managed credit you’ve had in the past reliably – in other words, that you’ve paid it back under the terms agreed.
Lenders use your credit report along with information on your application and information they might already have, to decide whether to offer you credit. Different lenders can score differently, using their own formulae, based on their own factors – there is no ‘magic number’.
The Experian Credit Score is an indication of how lenders may view the information in your Experian Credit Report – at first, you might find that taking out a new credit account might see it reduce a little, but managing it well can help improve it and build up your credit history.
Adverse information that remains on your credit report is likely to affect your credit rating less and less as time goes by, because lenders tend to focus on your most recent credit history. However, you might also consider adding a short statement to your report explaining why you got into difficulties in the first place. This is called a notice of correction and Experian can help you do this.
If you’re struggling to make ends meet, you could arrange to talk to your lenders. In some cases you may be able to arrange a repayment schedule. Free advice is also available from organisations such as Payplan or the Citizens Advice Bureau.
What if I’ve had a Debt Management Plan?
DMPs aren’t actually added to credit reports, simply because there is no central source of information on DMPs that credit reference agencies like Experian can use. However, any accounts registered on your report and included in your DMP should be appended with a DMP flag, to make it clear you’re repaying those debts through an agreed plan. You can find more information here.
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