For those who have had some financial difficulties in the past, or perhaps have just been badly organised and late in making payments, the marks on the credit file will mean that some banks will at worst refuse to provide credit, or at best, charge much higher interest rates.
This can mean that at times of real need, choices can be heavily restricted due to a lack of options and the higher than average cost of repaying the money. It is therefore worth repairing a credit score, even when there is no immediate need for finance, so that when the time comes there are options available.
Many people think that by not taking out further credit they will be viewed in a more positive light by potential lenders but this is not necessarily the case. A good salary does not necessarily mean a good risk. What lenders are looking for is a pattern of money borrowed being repaid promptly.
Therefore, in order to get a higher credit score, it is necessary to have credit and repay it on time – without exception – which will show that you are reliable and can be trusted to make payments. As using a debit card simply means accessing your own bank account, this does not count towards improving a credit rating.
Credit cards are a different kettle of fish and are an excellent way of rebuilding a credit score without applying for an unnecessary loan.
Many cards which are designed specifically for the bad credit market charge much higher rates of interest. Therefore, for an individual who is applying for credit cards solely to boost their credit rating, it is essential to repay the bill in full each month to avoid being whacked with a heavy interest charge.
Other forms of payments which will also contribute towards a credit score include mortgage (but not rent usually), a mobile phone under contract, any kind of personal loan or finance such as a car or fitted kitchen. Making sure that these payments are received by the lender on time will also help towards a better credit rating – the idea is to dilute any negative entries with a flurry of timely repayments.
For debts which are repaid manually rather than via direct debit, it is a good idea to pay them around a week or so early if possible. This means if there are any delays in transit or administrative hiccups, there is time to sort the problem out before the payment is due. It is far easier to prevent a problem than to try and get a disputed entry removed from a credit file.
There are other steps which can also be taken to improve a credit rating such as ensuring the electoral role is up to date – lenders like to see an indication of a permanent abode. For those that have had a default or CCJ, paying the debt off quickly and ensuring the credit file is updated to show the debt has been satisfied can be a major factor in improving a score.
Another option to consider is the use of prepaid credit cards. Whilst these do not usually improve credit ratings they do offer the flexibility of a credit card without racking up debts. There are many providers of this type of card in the market now with suppliers often offering both, such as the Tesco credit card as well as a prepaid Mastercard.