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Tackling your debts

How can I improve my credit rating?

Posted 01 March 2012

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Here are a few of the steps you could take - and things to avoid - to improve your credit rating.

There are a few things you can do - and avoid doing - to help your credit rating.

Your credit rating is an indication of how well you've managed your finances, based on your credit history. Your credit history goes back six years. When you apply for credit, lenders typically look at your credit history and give you a score. The score they give you will affect whether you can get any credit, or how much you get and how much you pay for it.

Having a bad credit rating can also affect which property you could rent, whether you could get a mobile phone contract and even which job you can get. So it is worthwhile doing everything you can to improve your credit rating, because it can affect all sorts of financial areas of your life.

How can I repair my credit rating?

It is possible to repair a credit rating once it's been damaged, although you can't repair it overnight. The first thing you should do to improve your credit rating is register on the electoral roll at your current address if you aren't already, because lenders will cross-check with it.

Your credit rating also takes into account how 'reliable' lenders think you are, and they use things like your work history and how long you've lived at previous addresses to help them understand. You could improve your credit rating if you live at no more than two addresses over a three-year period. The same goes for your employment - unless you move jobs for a good reason, like a promotion.

Lenders often prefer to lend to people who have bank accounts and who have been with their bank for some time - if you switch bank accounts too often over a short space of time, it could affect your credit rating.

Applying for lots of credit over a short space of time can look a bit 'iffy' to lenders - it can make it look like you can't get by without borrowed money, or like other lenders don't want to deal with you. So another step towards improving your credit rating is giving it some time between applications.

Similarly, if you have a great deal of outstanding debt, a lender is likely to give you a lower score, because any other debt you have makes it harder for you to pay back anything you borrow on top. So it's important to repay as much of your debt as you can - and repay it on time - to improve your credit rating.

If you enter into any kind of debt solution, like a debt management plan or insolvency, unfortunately your credit rating is going to be affected. Of course, you can take steps to improve it over time and everything does drop off your credit record after three to six years anyway, so it's not permanently damaged.

It's worth noting as well that different lenders score people differently, depending on their own criteria. And while there are three main credit reference agencies in the UK - Callcredit, Experian and Equifax - each of them scores customers differently too.

What that really means is one lender may turn you down, but another lender might not. That doesn't mean you should apply to lots of different people and see if you can get anything - that could be damaging to your credit rating. What it does mean is that being turned down once doesn't mean you'll never be able to borrow money again.

by Sarah Symons

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.