5 simple steps to rebuilding your credit score

April 11, 2018

If you have had debt problems such as payment defaults, or have entered into a debt solution such as a debt management plan, debt relief order, IVA or even bankruptcy, then this will have had an adverse effect on your credit score. A low credit score can then make it difficult for you to secure future credit, including mortgages, some rents, credit cards, loans and it can even affect your chance of getting some jobs.

If you have a bad credit score but have taken steps to manage your debt, you will no doubt be looking to start rebuilding your credit score and getting on with your financial future. Unfortunately there is no magic solution to increasing your credit score overnight. However there are a number of simple steps that you can take to start rebuilding your credit score and showing lenders that you are now a more attractive prospect.

Check your credit report for errors

Simple errors on your credit report can have a surprisingly large effect on your ability to get credit. So your first job should be to download your credit report from each of the 3 credit reference agencies; Experian, Equifax and Callcredit. You have a statutory right to get access to these for £2 each.

You should then go through each credit report line by line and check for any mistakes. Errors such as payments that you made on time being recorded as defaults, technical errors from your bank making it seem as if you have gone too far into your overdraft, or CCJs that you paid within their term still being visible, can significantly affect your credit score. So if you notice anything wrong, contact the relevant provider, creditor or credit reference agency and ask for it to be rectified.

Register to vote

Another simple step that can significantly affect your ability to get credit is whether or not you are recorded on the electoral roll as this is where creditors will go to confirm your address and identity. You can check the electoral roll online and, if necessary, sign up at gov.uk/register-to-vote.

If you are a non-EU or non-Commonwealth foreign national and therefore not eligible to be recorded on the electoral role, you can still provide all 3 credit reference agencies with ‘proof of residency’ such as a utility bill or a UK driving licence.

Credit builder cards

When you have bad credit it can often feel that you are in a Catch-22 situation; you need to secure credit to build up your score, but can’t get any because you have a bad score. However there are now a number of credit builder cards that are specifically designed to help people with bad credit increase their credit scores.

There are 2 main types of credit builder cards; standard no frills credit cards and prepaid credit cards that have an additional ‘CreditBuilder’ facility.

The more standard type credit cards that are open to people with a poor credit history tend to have a low initial credit limit and very high APRs. However if you only spend a limited amount and ensure that you pay off the balance each month, this will start to build up your credit rating and can help prove to lenders that you are a responsible borrower.

Prepaid cards with a ‘CreditBuilder’ facility are slightly more complicated but are usually available to people with even the lowest credit scores. The prepaid capability means that you pre-load the card with money and then are only able to spend the amount that’s on the card, meaning that you can’t get into debt.

However to help rebuild your credit score, some prepaid cards offer a ‘CreditBuilder’ add-on. This is essentially a fee that you pay to the card company each month; however you agree to this for a set period of time and sign a loan agreement for the total amount. Each month the card company will take the fee amount out of your account as payment towards the ‘loan’, so all you need to do is make sure that you have at least this amount on your card each month to show that you are repaying your loan.

If used correctly, credit builder cards (both standard and prepaid) can be a useful tool in rebuilding your credit score. However, there can be some downsides. Not paying off the balance in full on your standard card each month can leave you with hefty interest charges, and prepaid cards tend to come with a number of substantial fees attached including set-up fees, monthly fees, purchase fees and cash withdrawal fees.

Limit your credit applications

As useful as credit builder cards can be, if you apply for one (or any other type of credit) and get refused, it is important not to apply for lots of other types of credit straight away. Having too many failed applications in a short time on your credit record can adversely affect your score as lenders may assume that you are desperate for credit and thus represent a higher risk.

There are numerous eligibility checker tools available online that, although not as accurate as actually submitting an application, can give you a much better idea of the cards or credit facilities that you might be approved for. Check out the credit eligibility checkers at Money Saving Expert or U Switch.

Make payments on time

This might sound obvious but the best way to rebuild your credit score is to ensure that you make all of your monthly payments in full and on time. If necessary, make a budget, cut out all extraneous expenditure, and concentrate on paying your bills and paying off any debts. As we have said this isn’t an overnight solution, but if you are sensible and prioritise your spending over time you will see your credit score improving.

If you are one of the thousands of people in Northern Ireland that are struggling with problem debts, contact the friendly advisers at Northern Ireland Debt Solutions today. Even if you feel that your situation is hopeless, you may find that there are in fact a number of options open to you. Our team will help you decide upon the best course of action for you and then support you every step of the way. Contact us on 0800 470 0461 today.

Lawrence O'Hara

Insolvency Adviser

Tel: 028 2132 6269

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