How to gain a good credit rating?
Hoping to get a mortgage by myself in maybe just over a years time. I need to build up a good credit history, so far I have:
6 year history of car insurance paid monthly (no missed payments)
5 years of Car Finance paid monthly (no missed payments)
I'm getting a mobile phone contract which I will pay for monthly.
I have savings accounts and an ISA too (not sure if these are considered?)
Is there anything else which will help me?
Will it help to get more than one credit card? or is one enough?
Hope this helps. You seem to be on the right track :).
Improve your credit score.
Get on the electoral roll.
If you're not on the roll, it's unlikely you'll get any credit, so sign up immediately. You don't need to wait for the annual reminder, you can sign the register at any time on the About My Vote website.
Simply enter your postcode to search for your local council, complete the form online then print it off, sign it, and send it back to your local electoral registration office (the address will be on the form). You can also print a blank form but either way you need to post it back as they need a copy of your signature.
For those who aren't eligible to vote (mainly foreign nationals), send all the credit reference agencies proof of residency and ask them to add a note to verify this.
Time applications correctly.
Lots of credit searches, the notes left on your file when you apply for things, in a short space of time hurt your score. Space out applications, not just for credit but for car insurance, mobile phones and others, as all can leave searches on your file.
Moving house also disrupts a score, so make important applications pre-moving. Plus, you'll score better when you're earning, so if you're about to take time off, go on maternity leave or suspect potential redundancy, apply beforehand - though never lie on applications, if asked.
Building a good credit history/repairing past problems.
Credit scoring tries to predict your behaviour. If you've no credit history it's more difficult for lenders to do this, so you're more likely to be rejected. Therefore, both for those with poor and no credit histories, you need to build a good one.
One of the best ways to do this is by getting the right sort of credit card. By getting any kind of credit, and operating it perfectly (i.e never missing payments, always staying within limit), you can either build up a credit history from scratch, or remedy a tarnished one.
For a full, updated list of the cards to try for, and the golden rules of how to use them, read 'Bad Credit' Credit Cards guide
Keep up payments and never be late.
Always try to follow at least the minimum repayment plan for your financial products. Even if you're struggling, don't default or miss payments. Doing this once or twice could cause problems that can cost you for years (though you may be able to get past charges back, see the Bank Charges Reclaiming article). Those in the previous 12 months will hurt you the most.
If you are in difficulties, the cliche 'contact your lender' is a good one. Hopefully, it will try and help a little. Changing your repayment schedule is preferable to you defaulting - and though it will hit your credit score, it's better than a county court judgment (CCJ) against you.
For repaying credit cards, the simplest method is to set up a direct debit to repay it each month. Then, you'll always hit the key criteria. If you have to, just do it for the minimum repayment, but then always try to pay extra to get rid of the debt quicker (see the minimum repayments guide)
Marriage doesn't hurt, joint finances do.
Simply marrying or living with someone with a bad credit score shouldn't impact on your finances, as third-party data (ie, someone else's info) doesn't appear on your file.
Yet if you're 'financially linked' to someone on any product, it can have an impact. Even just a joint bills account for flat sharers can mean you are co-scored. If one partner has a poor history, keep your finances rigidly separate, and it should maintain access to good credit for the other.
In fact, there are only two common products that can infer financial linking: mortgages and joint bank accounts. As a note, there's no such thing as a 'joint' credit card. Technically, it's one person's account and the other just has access to it. It is technically possible that joint utility bills could be reported on credit files, though current practice is not to do so.
If you split up with someone you've joint finances with, once the accounts are separated or no longer active, always write to the credit reference agencies and ask for a notice of 'disassociation', to stop their credit history affecting yours in future.
Get a 'quotation search' not a 'credit search'.
If you're just trying to get a specific quote for a loan, ask the lender to do a 'quotation search' and not a 'credit search'. This means the enquiry won't have a negative impact on your credit score. Sadly, many lenders haven't yet adopted this practice, but it is worth asking. If not, consider whether you really want to get a quote - if it's unlikely you'll get the product, don't bother.
In both the Personal Loan and Credit Card Balance Transfer articles, there are details on special comparisons available to find out who's likely to accept you, without actually applying. Plus the credit checker gives you an idea for free of the type of cards you'll get.
Frankly, this situation is a disgrace. You should have a right to know the rate you'll get before applications go on credit files. Apply for a product and it puts a search on your credit file which hits your credit score, yet many products are rate for risk, without applying you can't know the rate. This vicious circle hurts comparing products and should be stopped. So be careful.
Evidence of stability is good.
Home owners rather than renters, and those who are employed, rather than self-employed, tend to be
accepted more. Putting a fixed (land) line rather than a mobile number on application forms can help with security checks and improve your chances. Being with the same employer, bank and current address for a while all help too.
Check the address on all active accounts.
You may not have used your old mobile contract or credit card for five years, but if the account is still listed as open and you had a different address this can stymie applications due to ID checks. Check your file and go through every active account's address to ensure it's up to date.
Avoid the 'rejection spiral'.
There's a nightmare scenario you need to avoid called the rejection spiral. It works like this:
You get rejected (sometimes falsely, due to an error).
You apply elsewhere.
You get rejected again.
This continues, until finally you check your files and get the error corrected.
You apply again
You're rejected, not due to the error, but because of recent 'searches'.
Thus, if you're rejected once, immediately check the files are correct, otherwise you may mess up your score for an age as more applications mean more searches, which compounds the problem. You'll be told by the lender which credit reference agency it used to assess your info, so focus on that.
It is possible after an error to get successive searches wiped, but it involves negotiation both with the agency and the lender, and isn't easy.
The rejection spiral also applies when you apply for credit normally reserved for those with an 'excellent' score when you, say, only have a good score (sadly, many lenders don't publish their criteria so it's difficult to know in advance). So you're a perfectly acceptable risk for most, yet once you get that first rejection, it can harm your chances of getting further credit because a search has been registered. So check your file and call lenders you plan to apply to in advance to check.
Dealing with defaults on your file.
One of the major problems people face are debt defaults on their file, these can easily hamper applications to get new credit and if they're genuine and fair are tough to deal with. Firstly check with the other agencies that the deafult is there too, then try the following tactics, especially if the default is unfair.
Complain to the Ombudsman. First write to the company and complain the default isn't fair and lay out your terms. Ask it to wipe the fault from your file, which it can do if it's disputed. If that fails, complain to the Financial Ombudsman the free independent arbiteur of disputes, it can rule both that the debt is unfair and that the default can be wiped.
Negotiate with the lender. If you're prepared to settle the debt, either in part or in full, then you can negotiation with whomever you owe the money. You can also make a condition of settlement that the default is wiped off your credit file. Companies can to do this for disputed defaults.
Add a 'Notice of Correction'. If all else fails and you believe the default's justifiably unfair, add a notice of correction to the file explaining the problem eg, "It was a joint account and the debt was run up once I had split from my ex-husband/wife." This will slow applications down, as most companies will look at it manually, but as a substantial default is likely to stop you getting credit, that's usually not a problem..
Cancel unused credit cards, debts and accounts.
Access to too much credit, even if it isn't used, can be a problem. If you have a range of unused credit cards, cancel most of them; this lowers your available credit and should help (see the Cancel Old Cards article for full info on what to close when).
However long-standing bank accounts with good credit histories can be a benefit to your credit score, so they're often best left open.
Also, if you need to cut debt costs, first check if the old cards will let you shift debt from other cards to them cheaply, as you then won't need new cards, which protects your score too. See the credit card shuffle guide for full info.
Use any savings to pay off debts.
The amount of outstanding debt you have is part of the info lenders have access to, so minimising this is a clever strategy. In general, you'll be better off by using savings to pay off expensive debts anyway (read Pay off Debts with Savings).
With the credit crunch biting, this is particularly true if the product you're applying for is a mortgage. People who haven't paid much of their mortgage debt off are struggling to get decent new deals (see the Remortgage guide).
For those with an LTV (Loan to Value ratio) of over 90%, meaning your mortgage debt is at least 90% of the house's value, getting a new mortgage has become very difficult. For those with an 80% to 90% LTV you should get a new deal, but it won't be too cheap.
So if you have savings, and can use them to significantly lower your mortgage borrowing, enabling you to get a better deal, it's often worth doing. The extra amount your savings will earn isn't likely to be as much as the benefit from a cheaper mortgage. Read Should I Pay Off My Mortgage?
And a final thought. Though it may be tempting, lying on your application form doesn't help. Firstly it's an offence, but also if lenders can't corroborate your information you may well get rejected anyway.
Thought you might find this useful:
[url=http://www.moneysavingexpert.com/loans/credit-rating-credit-score]Credit Rating: How it works and how to improve it. [/url]
Lots of tips on what to do and look out for with regards to your data and the data credit agencies hold on you. There can be a surprising amount of 'hidden' data that you may not have even considered could affect your credit rating and a lenders decision.
I used to work in Debt Recovery/Credit Assessment so regularly keep track of my details (helped enormously when getting my mortgage, and helped my OH from not being screwed by a Recovery Agency for an old debt that reared it's head). The people that write this site are generally very reliable :)
Thanks so much, that's great x