Credit Card Section

A Quick An easy Way To Start Improving Your Credit Rating

January 2006

In our view it's a scandal just how much power the Credit Reporting Agencies (CRA) such as Equifax and Experian have over our lives, they can literally destroy people in extreme circumstances. And to add to the problem there’s very little education out there that tells us what a credit rating is, how one works and most importantly how to get and keep a solid rating combined with the personal financial damage that a bad rating can have.

What Is A Credit Rating (often called a ‘Credit File’)

Simply put it's a file containing data about your past financial dealings. For example, all you mortgage payments, amount of money borrowed, credit card accounts and payment information etc.

All the financial institutions you do business with (or have done business with) will collate data on you and send it to the Credit Rating Agencies. This file will then be open for inspection by other financial companies such as banks and credit card companies.

A credit rating does not look at financial worth or how much money you earn, rather your financial history of borrowing and repayment. It's therefore possible for a poor person to have a great credit rating while a millionaire who's always late paying bills a dreadful one. In a situation such as this the poor person will usually have no problem getting credit (at reasonable interest rates) whereas the millionaire is likely to be refused credit from many mortgage or credit card deals etc.

Why Is A Good Credit Rating So Important

Having a good credit rating means you'll have access to money whether from borrowing or using credit cards etc, quite simply it gives you a lot of financial options.

But if you have a history of late payments (on a mortgage, credit card or even mobile phone bill) or worse Defaults and/or County Court Judgements (CCJs) you may find it very hard to even open all but the most basic bank account.

So how do you get a good credit rating –

• The mechanics of a good or bad rating are generally simple
• If you borrow money and repay on time you’ll receive a positive tick on your credit file, if late with a payment a negative will be noted
• If you get into serious problem with repaying a debt or bill then a Default or a CCJ might be recorded on your credit file and this is very bad news because potential lenders and banks will often refuse to do business with you
• Basically, a good credit rating will say ‘this person is a regular borrow of money and makes regular payments on time’ – Note it does not matter if you don’t pay the full debt off every month, just that you make at least the minimum payment on time
• For those with a good credit rating lenders will normally be happy to lend money at competitive rates because they can see from the potential borrower’s past history that he or she handles their financial situation in a responsible manner (ie. Pays money back on time)

How You Can Improve Your Credit Rating With This Free Credit Card

If you've been refused credit in the past, chances are you have a bad credit rating so will have to take steps to improve it. Improving it is not so hard (assuming you have not got a lot of Defaults or CCJs against your name), most people who have a bad rating do so because of late payments etc.

• What you have to do is start borrowing money every month and repaying this ON TIME
• The amount you borrow is not so important but the prompt repayments are critical
• The easiest way to put this into effect is to get a credit card and spend say £25 to £50 a month always repaying BEFORE the last payment date
• Don’t try and get clever with the payments, for example if the final payment date is the 25th don’t repay on the 20th, instead pay the bill a good 2 weeks beforehand
• However, if you don’t already have a credit card applying for one can be a catch-22 because the majority of credit card companies will turn down those with a bad credit rating
• But Capital One offers a card specially designed for those with bad credit, it will most probably only come with a maximum of £300 and a high interest rate (around 30%) but those two facts are not relevant because the last thing you should be using this card for is borrowing money

Summary

Your personal credit rating is critical because having a solid rating gives you financial options, ie you can choose who to do business with. If you have a bad rating then you must take steps to improve it because it will save you a lot of money in the future, cheaper interest rates on mortgages and credit cards etc.

• The easiest way to improve it is to borrow money and then repay it on time which takes little organisation
• Capital One's Classic Card is designed for people with bad credit and is an excellent tool for helping rebuild a bad credit rating
• Follow this strategy for 6-18 months and you’ll soon see a marked improvement in your credit rating (unless you have a series of Defaults or CCJs in which case if you cannot get them taken off your credit file will be severely damaged till they naturally drop off after 5 years
• When your credit rating has improved it will now be possible to apply for credit deals with far more competitive interest rates as well as get access to bonuses such as '0% credit card transfer deals'

See Also

• Vanquis Credit card - Use to repair your credit rating
• Capital One Card
• Find's List of Credit Card Links