Having avoided the rejection spiral there are a number of steps you can take to actually improve your credit rating.
If you haven’t already done so, this is the first thing to do. As well as seeing what information the banks are seeing about you, you will be able to get the credit reference agency to correct any mistakes.
The main credit reference agency Experian offers free credit reports on a 30-day trial basis. The free trial gives you online access to your report, email alerts if it changes and advice on understanding and improving it.
Typically, people pay for access to their report while they are in the process of searching for and applying for a mortgage to ensure there are no nasty surprises.
This helps you avoid the rejection spiral – see above for an explanation.
Companies check the electoral roll to combat identity fraud so if you’re not on it you’re unlikely to get a mortgage.
Contact your local council to make sure you’re registered. Foreign nationals who are not eligible to vote should send proof of residency to the credit reference agencies and ask for this to be noted on their file.
We’ve already seen how multiple searches in a short space of time can hurt your credit score.
If you’re going to be applying for a mortgage then avoid putting in applications for credit cards, loans and even things such as new mobile phone contracts or insurance, before doing so.
Remember, the bank doesn’t see that you’ve changed your phone provider – they just see that there’s been a credit check against your name.
If you have no credit history then you’ll probably be rejected, since there’s no way for lenders to predict whether or not you will repay them.
To build a credit history from scratch, consider getting “expensive” credit cards, such as Barclays Initial, Capital One Classic, Monument, Aquacard or Vanquis.
While the interest rates on these cards are horrendous (around 30%), they’re easier to qualify for and as long as you pay the balance off in full every month there’s no interest charge.
It’s best to have two cards and to do this for six to twelve months, spending a little each month. At the end of this time, you will have a proven credit history, which should allow you to qualify for better deals.
If you’ve had a CCJ that is now settled, make sure the settlement is recorded on your credit file. If it’s not got the confirmation details from the court and inform the credit reference agencies.
Always make at least the minimum repayments and ideally set up a Direct Debit in case you forget.
Pay more than the minimum if possible to reduce your interest burden.
If you are struggling even with the minimum repayments then contact your lender to try and get them rescheduled. While this will hurt your credit score it’s a lot better than ending up with a CCJ.
If default is on your file unfairly then write to the lender asking them to get it deleted from your file.
If this doesn’t work you can complain to the Financial Ombudsman who can have it wiped from your file if they agree it’s unfair.
Negotiate with the lender to whom you owe money. You can ask for one of the conditions of settlement to be that the default is wiped from your file.
If you can’t get the default wiped from the file and you still believe that it’s unfair then ask for a “Notice of Correction” to be added to your file. A Notice of Correction is your explanation of why you think the default is unfair.
Don’t max out your cards. Lenders will tend to view debt that is more than 30% of your credit limit as excessive and is concerned about your ability to keep up your payments.
Lenders will look at the total amount of credit you have available and be suspicious if you have too much – even if you’re not using it all. If you have cards you are not using then lower your available credit by cancelling them.
Note, however, that long-held bank accounts with a good credit history can help your credit score so these should be left open.
Paying off loans early will be looked on favourably by lenders.
Being married to or living with someone with a bad credit score should not affect yours, however, being “financially linked” may.
You are likely to be linked to someone if you have a joint mortgage or bank account, but even joint bills for housemates can create a link.
If one partner (or one housemate) has a poor credit history then keep your finances separate to avoid damaging the other’s score.
If you are no longer financially linked to someone then it’s up to you to contact the credit reference agencies and tell them.
Being a homeowner rather than renting helps you get accepted, as does being employed rather than self-employed. Even putting a landline rather than a mobile number on your application may help.
The longer you’ve been with the same bank, employer and at the same address the better too. So, if you’re planning on changing any of these it’s better to do so after putting in an important credit or mortgage application.
You should also ensure that the addresses for any open accounts appearing on your credit file are up to date. Having multiple addresses can hamper ID checks.
The higher the loan to value (LTV) of your mortgage the more interest you will pay and the harder it will be to get a competitive product if you want to remortgage.
If you have savings that could be used to pay off a significant amount of your mortgage then you should consider doing so.
As well as allowing you to get a better deal, the amount you save in mortgage interest payments will probably be more than you would have accrued on your savings.