How to Build a New Credit History
Written by Chelsea Potter on 31 May 2016
Once your IVA or debt management plan has finished, you can start your new life after debt. That might mean rebuilding your confidence in your ability to manage your money, but it should definitely include rebuilding your credit score.
After all, even if you don’t plan on using credit ever again after your bad experience, it’s still important to get your credit score back to a decent level. These days everyone from landlords to mobile phone providers check your credit history before agreeing to do business with you, so it’s still really important to make sure yours is up to scratch.
Here’s our guide to building a new credit history.
What’s the difference between a credit history and a credit score?
Your credit score depends on your credit history. Essentially, the way you have managed your money over recent months and years is your history, which would-be creditors can check when you apply for a loan. Your credit score is then worked out from that borrowing behaviour, so you need to build a good history to boost your score. If you’ve had defaults in the past, these will be recorded on your credit history and could affect your application for credit. Defaults won’t stay on your credit file forever however, they will be removed but when this is will depend on how you handle the management of your debts. For example
Don’t worry, you can see everything that lenders can see by checking your own credit file, and it only costs a few pounds.
How long will my IVA show up?
IVAs and bankruptcies remain visible on your credit file for six years after you become insolvent and that’s likely to affect the products and services you can apply for.
However, after that, it’ll be up to you to build a new credit history, one that shows companies that you can borrow responsibly and manage your money without falling into problem debt. The good news is that there’s lots you can do to show you’re reliable.
Make payments on time
It’s not just borrowing that can affect your credit score; paying bills late can also show up and act as a red flag for future lenders. One of the most important things you can do is pay your bills and invoices promptly, and not fall into bad habits.
Check you’re registered to vote
Lenders need to know you are who you say you are, which makes it extra important that your details are up to date on the electoral role, even if you don’t want to vote in elections. It’s proof that you do live where you say.
Consider a credit building credit card
One way to show that you can manage debt responsibly is to take out a credit-building credit card. Most credit card providers won’t want to let you have a card if your score is poor, but these specialist cards exist for customers like you.
With high interest rates and a low spending limit, the idea is that each month you use the card for your everyday spending and then clear the debt in full before you are charged anything.
Used properly, these show that you can use credit responsibly – but they do come with a health warning. If you leave a balance on the card then you will be charged a lot of money in interest, and it won’t improve your score in the same way.
Give it time
Your credit history is just that – a history. It can’t be rebuilt overnight and it will take time to prove that you can be responsible with debt and bills.
But once you’ve rebuilt your credit score, and put your problem debts in the past, you can carry on with life without worrying about lenders, and without being penalised by high rates.
It takes time to boost your credit score, but it is definitely worth it.
Talk to us
If your credit score is poor because you’re currently battling problem debt, then it will be hard to improve without taking action. If you’re struggling to manage your repayments and you can’t see a way out then ring our experienced, compassionate debt advisers for some free advice and support.
The number is 0800 280 2816 so talk to us today, and we can help you get your debts under control so you can get on with life.
Filed under Living in Debt