Overview: How to rebuild credit
The importance of your credit score can’t be overlooked, especially given the fact that it determines your ability to access credit.
When you have a bad/poor credit score, you will have a hard time getting credit cards and loans such as car loans, mortgage loans among many other types of loans. If you are lucky enough to get a loan and you have a poor credit score, you will have to pay more than usual. It is, however, possible to rebuild your credit score as credit blacklists do not exist in the UK.
Below are some important tips/steps to follow when you want to rebuild your credit score.
1. Understand that credit scores are about behavioural prediction
To be able to rebuild your credit score, you need to understand why you ended up with a bad score in the first place. Credit scoring/rating is about predicting the future behaviour of borrowers based on their past. Lenders have algorithms which attempt to predict the future behaviour of potential borrowers based on past borrowing and repayment habits. You most probably ended up with a bad score because of failing to make your loan repayments on time or failing to make them at all. To rebuild your credit score, you must purpose to meet all your loan obligations on time going forward so that your behavioural predictions change favourably.
2. Don’t send too many applications in a short period of time
To rebuild your credit score, you also need to understand that the system is against shopping around. Instead of applying for all short term loans you come across, it is better to do your analysis and apply for the best. There is evidence indicating that sending too many applications especially over a short period of time can have a negative effect on your future credit score.
3. Use eligibility checkers before applying for loans/credit
Loan eligibility checkers map your score against the lending criteria of different lenders and show your probability of qualifying for certain products. Using eligibility checkers is a great way to rebuild credit because it minimises the number of applications. Considering sending too many applications can have a negative effect on your future score, this tip is crucial for anyone keen on rebuilding their credit score.
4. Make consistent applications
It’s also worth noting that many loan/credit applications are rejected because of inconsistencies and this usually has a negative effect on a person’s future credit score. In the UK, most lenders use anti-fraud agencies like CIFAS and National Hunter to identify inconsistencies common in fraudulent applications. Inconsistencies range from using different job titles to different names and mobile phone numbers at the same time. In case you have more than one job title and/or mobile phone number, use the same when applying for all long-term and short term loans going forward to be able to rebuild your credit score consistently.
5. Check all of your credit files often
To be able to rebuild your credit consistently, you need to know how you are progressing. The UK has three main credit reference agencies namely; Experian, Equifax and CallCredit. These agencies have plenty of data on everyone who has used some form of credit history. It’s, however, worth noting that these agencies may have wrong/incorrect/outdated information that may still be used directly or indirectly to calculate your credit score/worthiness i.e. an old mobile phone contract you forgot updating to your new home address. It’s, therefore, important to keep monitoring your credit files to ensure everything is updated/correct.
6. Apply when the time is right
Building your credit score also has to do with applying for loans when the time is right. It’s worth noting that bankruptcy and County Court judgments stay on credit files for 6 years. Applications stay for one year. To ensure you don’t send too many applications at once which are likely to be rejected and in turn damage your credit score further, if possible, wait until County Court judgments, bankruptcies and applications have been cleared from your file before making new applications.
7. Use your credit card(s) often
This is by far one of the best and easiest ways of rebuilding your credit score. It’s worth noting that little credit history is bad because it makes it hard for lenders to conduct behavioural predictions and assess your credit worthiness. To rebuild credit fast and easy, spend at least £50 using your credit card every month and ensure you repay in full. This tip is great because you rebuild your credit without incurring any costs since you repay everything in full and on time.
8. Never miss or default on your credit repayments
This should go without saying. Missing or defaulting credit repayments is the most common cause of a bad credit score. As a result, you must pay all your debts in time going forward if you wish to rebuild your credit score consistently in the future. You can build your score faster by paying more than required every month.
9. Challenge unfair defaults
In case you defaulted on your repayments because of wrong-doing by third parties i.e. you couldn’t pay for goods you didn’t receive, it is possible to challenge defaults arising from such circumstances by launching a claim with your lender or by writing to the credit reference agency. Credit companies are willing to review unfair defaults but it may take some time. If that doesn’t work, you can forward the case to; financial–ombudsman.org.uk for a final verdict.