Having a good credit rating is so important in life, as without one it can be very hard to establish the services you need. A poor credit rating will affect everything including your ability to secure a mortgage, credit card or loan, but also impact more everyday aspects of your financial life, including mobile phone contracts, bank accounts and car insurance.
Is there a universal credit rating system?
No. Despite what consumers may have heard, within the UK there are there is no universal credit scoring system. Also, tales of the ominous credit blacklist are all but a myth, as each individual lender has unique and simple methods for scoring a potential client. Consumers with a spotty financial history, notable for not paying regularly will often feel as though they have been blacklisted, as it is unlikely any creditors will want to work with you, unless the firm specialises in high risk lending. However, those institutions are known to charge preposterous interest rates. Having little to no credit history can be as much of a setback as having poor credit, as it makes it difficult for lenders to determine the probability of repayment.
Building or re-establishing a good credit rating
If you are in a position of rejection where credit services are concerned, it is most important to stop and identify why you are being turned down. Be sure to verify your details are correct with credit reporting agencies like Experian and Equifax, as an error can lead to many issues.
If your bad credit rating is rightfully deserved, there is a way to rebuild your ratings. First of all, stop applying. Applying for too many credit products will negatively impact your eligibility, as will too many prior rejections. When it comes to establishing good credit, start with just one credit card in good standing, or when rebuilding, consider using the credit card shuffle method to improve your ratings.
Always look into your eligibility for a new credit product before applying by using one of many eligibility checkers available online. These checkers do a soft credit check that cannot be seen by lenders, that allows one to know the likelihood of approval without effecting future credit-worthiness.
There are many other steps to take in order to rebuild your credit successfully, including:
- The electoral roll – if you are not already on the roll it is imperative to do so, as you are unlikely to get credit if you aren’t.
- Deal with defaults – past debt defaults must be handled. Defaults can be managed by paying off, negotiating a settlement, or contesting a file if you believe it is in error.
- Streamline – Be sure to cancel all unused or unnecessary accounts. Too much available credit isn’t always good, but keep bank accounts and credit sources that have long established histories in good standings.
- Financial responsibility – the most important tool to having good credit is you. Make payments in full and on time, paying the balance in full whenever possible to avoid interest.