Credit Building Tactics
Much is written about credit ratings, the score against an individual’s name, that rates their eligibility for credit.
Is there just one credit rating?
No, there is no one single credit rating stored on a vast computer somewhere. Each credit company has their own list of credit-awarding criteria, based on their own risk-assessment methodology, that allows them to assess each individual application.
Credit Reference Agencies
The three agencies are Equifax, Experian and Call Credit. These companies gather information on an individual from the Electoral Roll, any Court records including County Court Judgements (CCJ), and financial data from banks, credit card companies and other financial institutions. These companies can issue a credit rating/score, but it is only part of the information used to assess a credit application.
Look into your file
Anyone can see their credit file for only £2. Simply send a cheque and the report will be posted. These should be checked for any errors, especially ones that might affect the credit score, such as an incorrect former address. Mistakes can happen, and spotting them early ensures they can be rectified before any credit application is made.
Create a Credit File
Electoral Roll: The single most important task is to get on the Electoral Roll. Foreign nationals should send the credit reference agencies proof of residency instead.
Home address: Credit applicants who have lived at an address for less than six months are more likely to be refused. Always apply before moving house, and always tell a credit card company the new address as soon as possible. Home owners are also better credit bets for companies than those who rent. Officially, address blacklisting has ceased, so even if you share with someone with a CCJ against them, this should not affect your personal credit rating.
Employment: The same rule applies as for house moves; make any credit card applications before moving job. The company will be delighted to find out later that their new customer has moved to a better paying job and will probably offer them an increased credit limit to boot!
Joint accounts: Living with someone with a bad credit score is OK, sharing a bank account with them is not. Card holders should always have their own accounts and own accounts only in this situation. This even extends to joint names on utility bills.
Pay bills on time: ANY late payment of any bill, household, phone, loan, whatever, will have an impact on your credit rating. Make sure all bills are paid on time and in full, or arrange a direct debit every month to cover the costs.
Get a bank account: Not always as easy as it sounds, but a building society account will do just as well. The important thing is to get inside the financial system.
Keep a UK account: people returning from living abroad have been off the credit rating radar for a while, and may have to kick start their credit rating from scratch on their return. Credit card users planning to go abroad should keep a UK bank account if at all possible. (This may require transferring statements to a UK address, such as parents’ or relations.)
Start Young
Students should look for banks that offer a credit card alongside their bank account, even if only after a period of time. The APR rates on these students’ cards are also high. However, there is nothing to prevent students applying for regular credit cards that have no minimum income requirements, although they will not offer the free gifts a student card will. Parents can also make a student a second holder of their own card, but they will be responsible for the debt (a worrying thought in Freshers’ Week, perhaps!).
Start even Younger
Children can also open their own bank or building society accounts, which not only build financial awareness, but also sets up a relationship with that financial institution early on. Chances are, when that child grows up and starts to earn, they will be less inclined to swap banks. Again, that credit history, whilst not on a credit reference agency file, cannot but help in any application for that bank’s credit card…
Establish a Good Credit record
With the first credit card issued, it is important to use the card regularly and pay of the balance in full each month. This establishes the card holder as a responsible user, important for future credit applications.
Keeping a Good Credit Record
Card holders should ensure all payments are made on time, on all their debts and bills. There is a theory that the occasional credit increase request does no harm either, but card companies will often do this automatically once card expenditure reaches a certain level per month.
Bad credit credit cards
These cards are offered to those with a poor credit rating. They charge high rates of interest, and perhaps require an annual fee. Of course, the high interest rate will only apply if the balance is not paid off in full at the end of each month. They are a useful step back on the financial ladder for those who have overcome their credit difficulties but should NEVER be used to pay off existing debt.
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