How to build a credit rating

How to build a credit rating

If you’re ever looking to take out a financial product such as a loan, credit card or mortgage then the decision will partly be based on your credit rating.

Your credit rating reflects your ability to get credit. Generally speaking, the better your credit rating, the more likely you are to be approved for financial products and the lower interest rates you’ll typically pay.

The lower your credit score and the weaker your credit rating, the more you may struggle to get approved by banks and building societies for financial products such as loans or credit cards.

If you have little or no credit history, this may negatively affect your credit score and make it difficult for you to borrow. It may sound counterintuitive, as you may presume that if you’ve never had any debt, then you are the perfect customer?

However, most companies like to see that you have a track record of managing borrowing responsibly. Understanding that you have managed debt in the past helps them to decide if you’re likely to make your payments on time.

If you want to start building your credit rating, an excellent place to start is by establishing what your current credit rating is.

You can see your credit history at one of the UK’s three Credit Reference Agencies:

• Experian

• Equifax

• Call Credit

Each of these agencies creates a credit report based on the information they have access to. This means that your credit rating may vary slightly from one agency to another, depending on the information they hold.

7 ways to build your credit history

If you want to improve your credit rating, there are several simple steps that you can take. It may take a few weeks or months to see the benefits of these actions, but here are seven easy ways you can build your credit history.

1. Open a bank account

Having a current account and managing it well demonstrates that you can maintain a financial product responsibly. If you have an overdraft, then make sure you stay well within your overdraft limit and pay it off as quickly as you can.

2. Make sure you’re on the electoral register

Wherever you live, it’s easy to register on the electoral roll. Ensuring you’re on the electoral register is important as companies use this information to confirm your name and address. It’s a key way to build your credit rating.

3. Take out a small form of credit

Showing that you can manage your finances responsibly is a crucial way to build your credit rating. So, consider taking out a small form of credit, such as a mobile phone contract, store card, or a credit card. Make all your payments on time, and you’ll demonstrate your ability to manage your financial commitments responsibly.

4. Use a small percentage of your credit limit

If you have a credit card then try only to use a small percentage of your credit limit, and pay it off before any interest is charged.

5. Pay all your bills on time

Making sure that all your household bills are paid on time is another way that you can demonstrate that you are financially responsible. Always pay your gas, electricity, water and council tax on time, and this will help you to boost your credit rating. Setting up direct debits to ensure that all your bills are paid on time is an excellent way to ensure you don’t miss a payment, and that you don’t pay late.

6. Restrict the applications you make for credit

If you make a lot of applications for credit at the same time, it can damage your credit rating. This is because it can seem as if you are overly reliant on credit or that you’re desperate to borrow. Every time you apply for credit it leaves a ‘footprint’, and so the fewer applications you have made, the better.

7. Check your credit rating regularly

When you’re trying to build your credit rating, it is useful to keep a close eye on your credit report. Make sure that you check it online every few weeks to ensure that everything is always correct and up to date. Even small mistakes such as your name spelled incorrectly or a different format of your address can have a negative impact on your credit rating.

Please note: All information within Your Resource Centre is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given. The information reflects the view of the author and not that of Shepherds Friendly Society.

If you’re not sure what to do when making financial decisions then you should consult a financial adviser, who will likely charge for any advice that is given.

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