How to improve bad credit

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Bad credit can affect the number of mortgages available to you, the amount you’ll be able to borrow and the interest rate you’ll pay. The good news is, even if have a bad credit rating, you can still get a mortgage. However, to improve your credit rating and give yourself a better chance of getting your mortgage application accepted, there are a few simple steps you can take…

What is a credit score?

Your credit score, or rating, is the number that credit agencies use to decide on your suitability for taking credit. It is assessed using personal and financial information about you and your past behaviour with credit, to determine your creditworthiness.

The lower your credit score, the more difficult it is to get credit, because a low credit score can indicate to lenders that you have a history of financial behaviour which is more of a risk to them. This could include things like late payments or defaulting on debt, right the way up to being declared bankrupt or insolvent.

Ways to improve your credit score

Knowing how to build or repair your credit score is important if you want to improve your chances of getting approved for a mortgage.

Here are a few things you can do to improve your credit score: 

1. Get on the Electoral Register

One of the first things most lenders look for is if you are on the Electoral Register. If you’re not, you will probably find it difficult to be approved for credit. This is an easy one to fix, simply register to vote via post or online.

2. Check your credit file

You should always check your credit file with a credit reference agency before you apply for credit. It will help you to spot and rectify any mistakes or fraudulent activity. If you spot any mistakes, get the credit reference agency to rectify them and if you spot any suspicious activity, let them know immediately.

3. Use credit

If you’ve never used credit in the past, it can be very hard to prove to a lender that you are a responsible borrower and will be able to make your repayments. So, take out some credit, no matter how small, to show them you are creditworthy. This could be a mobile phone contract, or a credit or store card.

4. Make your repayments on time

Consistently paying your debts on time will have a positive impact on your credit score. This includes things like your loans, utility bills, credit cards and mortgage repayments.

5. Clear your debts

If you’re currently carrying any debt, no matter how big or small, clearing it as quickly as possible will not only have a positive effect on your credit score, it will also mean you have less financial burden moving forward. Double win! 

6. Check your financial associations

If you have, or have had, joint credit (a financial association) with another person over the past six years, your credit file will be linked with theirs. So, if they’ve failed to make payments on time or defaulted on their debt, it will affect your credit score negatively. To end a financial association, you’ll need to close the joint credit product, or move it to an individual account. You’ll also need to contact the credit reference agencies to add a notice of disassociation.

7. Don’t apply for too much new credit

Every time you apply for credit, whether you take it or not, it will be recorded on your credit file. If lenders see too many applications over a short period, this can negatively impact your credit score as they will view you as a riskier individual to lend to.

8. Remove any defaults, CCJs and bankruptcies

If you’ve ever had any form of court action taken against you, such as a CCJ, IVA or bankruptcy, this can negatively affect your credit score. The good news is that if it happened more than six years ago, you can remove it from your credit file. This doesn’t always happen automatically, so it’s always worth checking with the credit reference agencies that it’s been removed completely from your file. You should do this before you apply for credit, so the lender doesn’t see it.

Know your credit score

While we’ve shown you several ways in which you can improve your credit score, if you are applying for a mortgage, it’s a good idea to find out what your credit score is.

There are a few reasons for this:

  1. Checking your credit your score will give you a clearer picture of how the banks, building societies and other financial services providers view you when you want to take out credit.
  2. Once you know what your credit score is, you’ll have a better idea of where you stand, what your chances of getting approved are and why your application for credit might be rejected.
  3. It will also give you a good idea of what you need to do to improve your credit score, to give you a better chance of getting credit at lower rates.

Learn more

For more information about Bad Credit Mortgages and to learn how My Mortgage Pro can connect you with an expert mortgage broker who can help you find one, fill out the form below to request a call and we’ll be in touch.