If you’ve struggled with debt or you’ve recently been in a debt solution, your credit score has likely suffered as a result. This can have a knock-on effect on your ability to get credit, and you might struggle to get a loan, credit card, or mortgage.
Some companies claim to provide credit repair services where they ‘fix’ your credit score for you, but it can be difficult to know if they are a legitimate business or a scam.
How is my credit score calculated?
There are three main credit bureaus in the UK (Experian, Equifax, and TransUnion). Each one collects financial information about you to create what’s known as your credit score – a three-digit figure designed to show your ‘creditworthiness’ or your ability to repay money borrowed.
Some of the factors that contribute to your credit score include your personal information, credit history, credit enquiries, and public records. However, because each credit reference agency collects information from different sources and places different weighting on each factor, your credit score can differ slightly depending on where you look.
This means that there is no ‘magic number’ when it comes to your credit score. Even if the numbers are different, the same rules apply: a higher credit score shows lower risk and increases your chances of qualifying for things like a better deal on a mortgage or a lower rate on a car loan.
It’s important to check your credit score regularly to ensure it’s accurate and reflective of your borrowing history.
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What things can damage my credit score?
Understanding the different things that can damage your credit score can help you avoid certain financial behaviours and keep your credit history as healthy as possible.
Here are some of the things that can contribute to a ‘bad’ credit score:
Setting up too many credit accounts
Opening up a new credit account (e.g. a bank account) will usually only lower your credit score for a set period. However, if you do this regularly, your credit score won’t have time to recover and could be permanently damaged, affecting your ability to get credit when you need it.
Maximising your credit limit
Your credit limit is the maximum amount you can borrow on your credit card at any one time. Getting too close to or exceeding your credit limit can suggest you have financial issues or are over-reliant on credit, and lenders might be less likely to lend to you as a result.
Applying for credit too frequently
Completing too many credit applications can have a negative impact on your credit score, regardless of whether you’re successful or not, as it indicates you need credit to get by. Each application also records a hard search on your credit report for at least 12 months, which causes your credit score to drop.
Missing regular payments
Missing payments on a credit agreement will lead to the lender recording a default on your credit report for six years. This signifies that the lender has closed your account due to too many missed payments and can make lenders wary of your ability to afford another credit agreement.
Having little to no credit history
It might seem unfair, but in order to build a better credit score, you need to have a solid credit history. In other words, your credit report must show proof that you’ve successfully managed credit accounts in the past and you’re a reliable borrower.
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How can I improve my credit rating?
Having a compromised credit score can be worrying, especially if you want to apply for a loan or mortgage in the near future. Thankfully, there are many things you can do to improve your credit rating and boost your chances of being approved for credit, such as:
Register to vote
When you register to vote at your current address, your details are added to the electoral register. Some lenders check the electoral register when you apply for credit to ensure your details match. If they do, your credit score will increase as it rules out fraud and identity theft.
Make regular payments
Paying your regular outgoings (e.g. rent and bills) in full and avoiding late payments wherever possible is a good way to show lenders you’re a responsible borrower who can be trusted to take out credit. The longer you maintain on-time payments to your creditors, the more your credit score can increase.
Check for errors on your credit file
Even a small mistake like a misspelled address on your credit report can be enough to lower your credit score by several points and cause a lender to take adverse action against you. Requesting a free credit report and contacting the relevant credit reference agency with details of the inaccurate information can help you dispute any errors and ensure your credit score is accurate.
Keep credit accounts open
Keeping old credit accounts open and active shows a long repayment history. This can influence a lender’s decision to lend to you as it shows that you can successfully juggle multiple long-standing credit accounts over a prolonged period.
Consider a credit builder card
Credit builder cards can improve your credit score over time if you use them for a number of small purchases and pay down your credit card balance each month. They typically have low spending limits and high interest rates, which means that, in contrast to standard credit cards, they can only be used for a small number of monthly expenses.
What is a credit repair mortgage?
If you’ve been researching ways of improving your credit score, you might have stumbled upon credit repair mortgages (also known as specialist mortgages or sub-prime mortgages). But what are they?
Put simply, a credit repair mortgage is a type of mortgage that might make it easier for individuals with credit problems to buy a new home or remortgage their current home. They are specially designed for people who have defaulted on a credit agreement, missed payments on their mortgage or bills, been in a debt solution, or had a court order (e.g. a County Court Judgment) issued against them.
Like credit builder credit cards, credit repair mortgages tend to have higher interest rates than standard mortgages to counteract the perceived risk of lending to someone with a less-than-ideal credit history. They also tend to have more flexible credit criteria to give people who typically wouldn’t qualify for a standard mortgage the chance to buy a home.
By sticking to the terms of a credit repair mortgage and proving you’re a reliable borrower, you can gradually improve your credit score upon completion, increasing the chances of qualifying for better credit products down the line.
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How can I avoid credit repair scams?
It can be tempting to get lured in by a company that guarantees to repair your credit history practically overnight. However, it’s important to be aware of scammers who only look at the potential financial gain and don’t actually deliver results. Put simply, if it sounds too good to be true, it probably is.
Thankfully, there are a number of red flags you can look out for to help you identify when a credit repair company might be trying to scam you. These red flags include:
- Promising to improve your credit score within a short timeframe
- Asking you to pay an upfront fee before delivering results
- Claiming to be able to remove negative information from your credit report
- Pressuring you to pay a higher cost to upgrade the service you receive
- Having negative or no customer reviews or testimonials online
- Asking you not to contact credit reference agencies
By familiarising yourself with the key warning signs commonly associated with credit repair scams, you can stay vigilant and protect yourself from further financial damage.
It’s also worth remembering that credit repair companies don’t have any special privileges and can’t do anything you can’t do yourself. For example, just as you could do your taxes yourself, many people hire a professional to do it on their behalf.
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Conclusion
There are many ways to improve your credit history after a period of financial instability, but there is no quick fix, and some methods are more legitimate than others. The length of time it takes to improve your credit score depends on a variety of factors.
To boost your credit rating, register to vote, make regular payments, check for errors on your credit file, keep credit accounts open, and consider a credit builder card. The more you can show that you’re a reliable borrower, the more likely you are to qualify for better deals on credit.
It’s important to be vigilant of credit repair scams. By knowing which red flags to look out for, you can prevent a situation where you not only pay for a service you don’t receive but also potentially damage your finances further.
