Want that swanky new car? Find out how to improve your credit rating

By Iona Bain

So you’re well on your way to amassing the savings you need to reach your goal.

Unless you’re Richie Rich (or your next money goal is ludicrously cheap), you might need to consider some credit options to help boost your score in order to get a healthy looking borrowing account. 

Borrowing history

If you are looking for a mortgage, i.e. a home loan, this might be the first time you allow yourself to be assessed as a borrower.

Lenders will use their own criteria for judging you, and deciding whether you are a good or a bad risk. If it's your first loan, you may be a victim of having a thin credit file, it’s young adults who are most likely to have a thin file. The reason? There’s going to be little evidence of your relationship with money. If you want to know more about thin credit files click here.

If it is not your first loan, they will have access to your personal credit file which will show your payment history on any previous loans. The longer it is the better, especially if your payment record on any loan or card is good.  So it is important to lay the groundwork for a mortgage application by building a credit history.

Your record

Yes, your file will show up regular bills, such as your electricity, TV, mobile. Your credit history will be boosted if all these were paid on the nail. But regardless of that, it will still be an enormous help if you have taken out responsible credit in the past. So start planning for this BEFORE you make an mortgage application – maybe once you have started saving a decent amount per month.  

Lenders will be more comfortable if you have a mixed bag of loans or credit than if you are maxing out in one area.  They will also not want to see a rash of applications for new credit in a short space of time, as that could signal you are in trouble.

Lenders will take a close look at those bills, and your bank account, and see whether you are living within your means. They will make a call on whether you have enough left over each month to be able to afford the repayments. For some types of loans they may ask for proof of your wage or salary, in pay slips or tax forms.

Credit files

There are three credit reference agencies which are allowed to keep a ‘credit reference file’ on you: Experian, Equifax, CallCredit. The lender can get a copy of the file from any of them. The file will show your entry on the Electoral Roll, to prove your address and how long you have been there.  It will show any public record referring to you; an overview of your bank account, borrowings, and payment records, and any associated person you hold an account with or have applied for credit with.  The file also flags up every previous search of it made by any organisation over the past 12 months. Any black mark usually stays on file for six years, then it is wiped, which could mean you have a clean sheet.

You can request to see your report free at giffgaff and by signing up for a free trial at the other free agencies like CallCredit, Experian and Equifax. You can also legally request a copy for the small payment of £2. Make sure they’re complete, up-to-date and accurate. You can ask for incorrect information to be changed or removed and add a notice to explain any special circumstances.

Fixing your file

Perhaps you have a collection of credit cards, with lots of headroom up to your credit limit. That could be frowned on – what if you get a new card, then start maxing out on the old ones? Or are you being unrealistic in how much you want relative to your income?  Or perhaps you want the new loan to pay off the old ones ....but the lender can’t be sure that is what you would actually do. There are fixes for all of these. Ask your current lenders to bring down your credit ceiling, then reapply when your profile is updated.

Check your credit report regularly, query anything inaccurate in it, use it as a guide to planning better financial health. Better still, discover budgeting, where you review where the money actually goes, write it all down, and set limits for each area.  Finally, make sure you are not being negatively affected by having held a joint loan with a partner at any point.

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