11 January 2013

How to improve your credit rating

How you could increase your borrowing options - A good credit rating could make it easier to borrow extra money when you need to. So if you're thinking about applying for credit, the tips below could help with your financial planning.

What not to do

  • Regularly exceed your agreed overdraft limit - Unauthorised overdrafts and excesses could be seen by lenders as financial stress and abuse of credit.
  • Borrow excessively - Over-exposure to debt can place pressure on income and meeting your everyday living costs and repayments.
  • Make too many late payments - Lenders will be able to see missed or late payments, defaults and County Court Judgements on Direct Debits, credit cards and bills.
  • Make multiple credit searches and applications at once - Applications will appear on your credit report as searches, and too many in a short time could be seen as financial distress.
  • Change address too frequently - Frequent changes of address can show less stability and be viewed negatively by lenders.

What to do

  • Make sure you are on the electoral roll - This allows lenders to make sure you are who you say you are.
  • Show you can use credit sensibly - Manageable debt can help you to establish a good credit history, which can help with future borrowing.
  • Make sure your outgoings don't exceed your income - This will help you avoid getting into unnecessary debt.
  • Ensure you make regular salary payments into your primary current account - A visible regular source of income will mean you appear more credit-worthy.
  • Demonstrate money management skills - Pay off existing debt, make credit card repayments on time, and pay your bills via Direct Debit. This shows you are more likely to meet future credit repayments.
  • Keep current accounts in credit - Accounts kept in credit show less sign of financial pressure and build lenders' confidence.
  • Reduce or remove overdrafts - An overdraft is a form of lending, so if you're not using yours, removing or reducing it can have a positive impact.
  • Close dormant current accounts and cancel unused credit cards - Closing any dormant accounts you have will help prevent them potentially harming your credit profile.
  • Ensure information on your credit report is correct - Mistakes can happen but don't let them harm your credit profile.

Source: Barclays