How to build up or repair your credit rating

How to build up or repair your credit rating
Date of Publication: Wednesday, 22 April 2009 11:15
If you can build up a good credit rating, it will naturally open up your financial options. Whether you're looking for a credit card, loan, mortgage etc, you should have no problem qualifying if you have a good credit history. On the flip-side, these finance options are likely to be less available to those that have a bad credit rating.

This article provides steps and measures to improve your credit score.

It is very common for successful people with high paid jobs and a little or no debt to carry a tarnished credit rating with them

A bad credit rating is usually given as a result of late payment for bills such as credit card or utility bills; a Default or County Court Judgement (CCJ) put against your name.

Depending on how bad your situation is, repairing your credit score can be challenging. If the reason behind your bad rating is down to incorrect information or because of late payments, it should be relatively easy to improve.

Unfortunately for those with a Default of CCJ, it can be very difficult to sort out, but there is still hope. A Default will remain against your name for 6 years and is usually the result of failure to keep up to date with payments such as loans, and ignoring correspondence from the lender regarding the payments. This is seen as very serious, and will affect you if you wish to take on any financial product that involves borrowing, and in some cases even getting a current account.

There are 3 significant parts that make up your credit file:
  • Personal details (name, date of birth, address etc.)
  • Details of any financial products you have that involve credit, such as mortgages, credit cards, loans, phone contracts, bank accounts etc.
  • Description of your track record, detailing past history of payment records to show whether you always pay your bills on time, or you have had multiple late payments. This is to demonstrate to lenders whether or not you can be trusted for future credit.

You may be surprised to learn that your assets and income are not taken into account, which makes it possible in some cases for an unemployed person to qualify for a loan, but a successful highly paid person to be refused.

This will generally fall down to the fact that the unemployed person has a good track record of paying bills on time, whereas the highly paid person misses payments simply through not being organised.

Credit ratings are used to provide a base for lenders to read from, allowing them to judge whether or not they trust you to pay off potential credit.

If you lent £50 to a friend after being told you would have it back in a week, and it took 6 weeks, you may think twice before lending to them again - This is similar to a bad credit rating.

Equally if another friend borrowed £50 and paid you back on the day they had said, you would feel confident in lending to them again - This is similar to a good credit rating.

How can you get a good credit rating?

The only way to get a good credit rating is by earning one. To do so, you will have to have had some kind of financial product, or regular payment such as electricity bills, ensuring the full amount owed is paid on time and within the terms stated in the original agreement.

You can only ever earn a bad credit rating, which is usually achieved through being consistently late with payments, or not paying them at all.

In short, your credit rating can be used by lenders to predict whether you are likely to make the required monthly payments in full and on time until the debt is paid off in full.

How to find details of your credit rating

If you would like to find out how good/bad your credit rating is, there are two main credit reporting agencies that can help - Experian and Equifax.

For just £2, either agencies will send you a copy of your credit file. Avoid signing up for the monthly plan if  you can, as this can be expensive and is not required by most people.

How to repair a damaged credit rating

The next section assumes that you have a bad credit rating due to either incorrect information, or several late payments.

There are two main steps you can take in order to repair your credit score:

Step One

After receiving your credit file the first thing you must do is go over every piece of personal information and ensure that there are no errors, for example your name has been misspelt, or a loan you took out for £1,500 from Barclays is showing as £5,500.

If you do spot any mistakes, they can be amended by contacting the agency you obtained your file from, using the helpline provided.

How being registered on Electoral roll can help your score

To recap, potential lenders use your credit file to predict the likelihood of you repaying credit on time and under the agreed terms. They will also look at stability.

Being on the Electoral Roll provides a good sign of stability and you don't necessarily have to vote to be registered, so if you want to improve your credit rating, get on the phone to your local MPs office or the local Council for the forms and complete them as soon as possible.

Why it can be worth getting a credit file from each agency

Every day, millions of entries are made to credit ratings, so it is not rare for errors to occur. If you find that a piece of information is incorrect with one agency, it is likely to remain incorrect at the other, even after updating it.

It is therefore a good idea to get both credit files from the two agencies, checking them in detail to ensure they are both accurate.

Step Two

Make some changes to your spending habits.

A good way of proving to a lender that you can manage your payments is by using your credit card to pay for monthly and everyday expenses that you would usually cover using cash or a debit card. This is because these payment methods don't require credit, so your history cannot be tracked. The golden rule when using a credit card is to ensure you always pay off your balance on time.

So next time you go to to pay for fuel or your weekly shop, use a credit card.

In theory, using your credit card each month means that you're borrowing money and provided that you pay off what you have 'borrowed' on or before the bill due date, it will have a positive effect on your credit score. Continue to do this for 6 to 12 months and you should see a significant change in your credit rating.

Important – don't be tempted to begin using your credit card for credit purposes, i.e. getting into debt. If you want to improve your rating then you must use them for this reason only.

What to do if your credit card application is rejected

There are now a number of credit cards available to cater for a range of situations, even those with bad credit ratings. These cards tend to offer low credit limits (generally around £500) and high rates (around 40%), but this is not a problem, provided you pay off your balance in full without fail within the interest free days provided with the card (usually up to 56 days).

A popular card designed for consumers with bad credit ratings from defaults or CCJs is the Vanquis Credit Card, which offers a credit limit of up to £250, with 39.9% APR on purchases, up to 56 interest free days and online banking facilities. To qualify for this card you don't need to be a permanent resident of the UK, nor do you need to have a bank account.

It can be beneficial to have two or more credit cards when trying to rebuild your credit score, as this allows you to prove that you are able to manage your credit, without simply getting into debt.

Written by Sam Gooch

Wednesday, 22 April 2009 11:15
Bookmark and Share

Make a comment on this article

Please enter the following letters in the box below.
We're very sorry for this but we just need to ensure
that you are not a computer.

Top 5 Credit Cards

Balance Transfers
Typical APR (variable)
View Full Table >
Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% (variable) your Representative APR will be 18.9% (variable).
12 mths
12 mths
Representative Example: If you spend £1,200 at a purchase interest rate of 15.9% (variable) your Representative APR will be 15.9% (variable).


No foreign transaction fees on purchases and cash withdrawals abroad when made in the local currency. No cash withdrawal fees at home and abroad (interest is charged immediately on cash withdrawals and some independent ATM providers may charge a withdrawal fee).

Introductory Offer
Balance Transfer Rate: N/A
Balance Transfer Fee: N/A
Purchase Rate: N/A
Representative APR
Purchases: 18.9% p.a. (variable)
Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% (variable) your Representative APR will be 18.9% (variable).
Annual Rates
Balance Transfers: 18.9% p.a. (variable)
Cash Advance: 18.9% p.a. (variable)
Annual Fee: N/A
Standard Features
Interest Free Days: Up to 56 days
On-Line Banking: Yes
Approval Criteria
  • You are at least 18 years of age;
  • You have had a permanent UK address for at least the last 3 years;
  • You do not have a history of bad credit (in other words, county court judgements or bankruptcy);
  • You have an income in excess of £7,500.


Collect 0.5% unlimited cashback on all purchases in pounds sterling. Also, get commission free card purchases abroad!! No balance transfer fee applies for the first 3 months of account opening, after which time it will revert to 2.4% (Minimum £5)

Introductory Offer
Balance Transfer Rate: 0% for 12 mths
Balance Transfer Fee: N/A
Purchase Rate: 0% for 12 mths
Representative APR
Purchases: 15.9% p.a. (variable)
Representative Example: If you spend £1,200 at a purchase interest rate of 15.9% (variable) your Representative APR will be 15.9% (variable).
Annual Rates
Balance Transfers: 15.9% p.a. (variable)
Cash Advance: 27.9% p.a. (variable)
Annual Fee: N/A
Standard Features
Credit Limit: £25,000
Interest Free Days: Up to 56 days
On-Line Banking: Yes
Standard Cashback Rate: 0.50%
Approval Criteria
  • You are at least 18 Years of Age
  • You have an Excellent Credit History
  • You are a permanent resident/citizen of the UK
  • You earn over £5,000 per year