Your guide to improving bad credit

Friday Nov 30, 2007

Being turned down for a loan, credit card or mortgage can be a devastating experience, especially if you have no idea why.

You may never have seen your credit report – but it is the key to getting the loans, credit cards and mortgages you need. Simply put, it is your financial CV, which lenders check when they decide what kind of deal to offer you – or whether to turn you down.

Do you have a poor credit history?
Your credit report is a personal history of your loans, credit cards and mortgages, your repayment record and other relevant data such as whether there are any court judgements against you or if you have been bankrupt.

It’s the key to your credit rating, because lenders use it, along with information on the application form, to calculate a credit score that indicates the chances that you will repay what you owe – or not.

High debts, late payments and court judgements can all result in you being rejected by a lender, even if there were special circumstances that explain your problems.

According to CreditExpert, it is better to check your credit report before you even apply to be certain that it is up-to-date and reflects your current circumstances.

Consolidating your loans
If you have a lot of repayments to meet every month and are finding that things are getting on top of you, then it might be a good idea to consolidate your loans.

Debt consolidation loans can be either secured or unsecured. A secured loan uses something of significant value to secure the loan amount. The most common source of security for such a loan is your home. Secured loans are less risky for the lender, usually leading to a lower interest rate and larger amounts available for borrowing.

An unsecured loan is not secured against something of significant value, so it is much riskier for the lender. This type of loan usually comes with higher interest rates, smaller amounts available for borrowing, and often includes restrictions on how you can spend the money you receive.

And, the good thing about these types of loans is that you can still get one, even with bad credit. However, they often carry a higher interest rate and lenders may place more restrictions on how you spend the money you receive, but the benefits of getting your debts under control often outweigh the additional costs involved.

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Have you been a credit tart?
With so many good deals on offer it makes sense for you to shop around for the best deal. But what many people fail to realise is that when lenders are dealing with an application they make a full search of your credit report, which will be left on your record.

This becomes a problem when other lenders search your report. They will see this and could believe that you are overstretching yourself, desperate for money – or even that a fraud is being planned

Therefore, you should always specify that you want a quotation and make it clear that you are not making a full application.

You can fix this problem simply by getting a copy of your credit report from CreditExpert and checking if any searches have been made in error. If they have, you need to contact the lenders concerned and ask them to change to record to show that you were merely asking for a quotation.

Solve your credit crisis
It may seem like you are sinking in a world of debt, but coupled with what has already been mentioned, a little extra planning will help you free yourself of those financial burdens. Devise a spending plan that reduces your debt and sets you up to pay on time, every time.

If you're having difficulty making payments, be proactive. Call your creditors and negotiate to keep your accounts current and from being reported as delinquent or "bad debt." You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills.

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Try to negotiate a pay-off settlement that reduces your bill, plus demand that all derogatory remarks are removed from your credit report or at least reported as paid in full. Be sure to get verbal agreements in writing before sending off your payment.

Slowly close out unneeded or unused credit accounts. Most experts recommend carrying between two and four major cards. But, be cautious when cancelling because closing accounts can negatively impact your credit score.

Remember that cutting up the card doesn't close out the account.

Using your vote
When it comes to your credit report, being registered on the electoral role is very important, lenders use this to help check that you are who you say you are and live where you say you live.

They also look for stability – that you’ve lived at the same address for some years. If you fail to register to vote, they cannot verify your identity and may ask for additional identification, suspect a fraud, or even turn you down flat.

If you want to register to vote, you can download a form from www.aboutmyvote.co.uk or ask your local authority for a rolling registration form, which will enable you to register at your current address and de-register from any old ones.

The electoral register is updated monthly, but local authorities may take longer to inform the credit reference agencies of any changes. If you need your record to be updated sooner, you can contact your local authority to get written confirmation of your registration, which you can then copy to all the credit reference agencies so that they can update their records.

Do you make the grade?
CreditExpert, the online credit monitoring and identity fraud protection service from Experian, analysed more than 100,000 Experian National Credit Scores to get a picture of Britain's creditworthiness.

They found the national average score was 763 out of a possible 1,000 - which represents a moderate risk for lenders.

To gain a credit rating of fair, good or excellent, you need to score 721 or above, and 61.9 per cent of us make the grade.

get a free dopy of your credit report here

So, how does it work?
Well, computer programmes score you application by looking at how past customers with similar profiles to yours repaid their credit commitments.

Every lender uses slightly different formulas that represent its own experience, and these can be adjusted according to the type of credit you are applying for. This means that every credit application can generate a different score.

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