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Make yourself an attractive borrower

By Annelies Van de Velde

Been splashing the cash or saving every penny? Ironically, both could have a negative effect on your credit rating. Even if you have always been good with money, your credit rating could still be poor because lenders don’t have any credit history to go on.

Whether you are being turned down for credit now, think you may need it in the future or don’t know what a credit rating is, read this credit-boosting guide.

How credit rating works

When you apply for credit with a company, it will check your credit score through a credit reference agency. These companies hold your credit report, which includes details of the electoral roll, County Court Judgments or CCJ’s (a ruling for an unpaid debt issued by a County Court), bankruptcies, your current and past credit commitments and they also show any payment defaults over the last six years. Based on this information they will make the decision if they can lend to you.

A better credit history means access to a wider range of products, at better rates. A poor credit history will limit your choice and could mean that you have to borrow at a higher rate.

Understanding the problem

There are two reasons why your credit rating might be poor:

1. You have little or no credit history.

If you are in this situation, you might be recently divorced or a homemaker, who is or has been, wholly or partially, financially dependent on your partner. You might also be someone who has not applied for much credit in the past.

Ironically, this high-risk category also includes people who have always paid their bills on time and have been financially independent enough in the past to not need any credit.

2. You have a credit history, but it is poor.

In this situation, you might be affected by badly managed credit in the past, due to late payments, bills in arrears, County Court Judgments (CCJ’s), bankruptcy or Individual Voluntary Arrangements (IVA’s – a contractual arrangement with a creditor to avoid bankruptcy).

You may also be in this situation if you are or have been financially linked (e.g. joint account, mortgage) with someone who has a poor rating. If you have split with the joint party you can write to credit reference agencies asking for a notice of ‘disassociation’.

Finally, many lenders like to see proof of a regular income. Therefore, if you are a homemaker, part-time worker, temporarily unemployed, self-employed or have an irregular income, you might also find it hard to obtain credit.

Related posts:

1. Take the Credit Check Quiz
2. Postal strike to hit credit ratings?
3. Credit file myths explained
4. Electoral Roll forms – vital to your credit standing
5. Why it Pays to Manage Your Credit File