How to improve your credit rating

RICHARD HOLDEN, HEAD OF FRANCHISING AT LLOYDS BANKING GROUP, SHOWS YOU HOW TO IMPROVE YOURS

Your credit history can affect your ability to borrow money from a bank, but a poor credit rating can have a far wider impact on your ability to get store credit, a mobile phone contract or even pay insurance by monthly instalments.

It’s worthwhile checking your credit report to ensure the information held on your file is accurate. Mistakes can happen that may restrict your chances of obtaining credit, so it is important to regularly check the records - and ensure you do this before making any major application.

STATUTORY RIGHT

There isn’t just one credit file and don’t assume all your files will be identical. Your credit files are held by Experian, Equifax and Callcredit and you have a statutory right to check your files with all three credit reference agencies.

Some of the things that could have a negative influence on your credit rating include:

* Significant existing debt.

* Multiple recent credit applications.

* Payment arrears.

* Late payments.

* Default information.

* County court judgments.

* Financial association with someone who has a poor credit history.

* Not being on the electoral register.

* Credit card accounts that are not being used.

* Frequent changes of address.

It is best to avoid doing anything that could adversely impact your credit history, but don’t worry if your credit rating isn’t in the best shape - there are simple steps you can take to improve your chances of securing the financial backing you require.
The first step is to stop applying for credit until you have resolved any problems. Every time you apply for credit it leaves a footprint on your file and you should fix any mistakes on your credit file by complaining to the relevant credit reference agency. They have 28 days to investigate your concerns and either remove the error from the file or explain why they may disagree with you.
Ensure you are on the electoral register if you aren’t already and cancel any unused credit cards. If you have defaulted on any credit agreements in the past, speak to the lender and come to an arrangement to settle any outstanding debt.
Moving forward, ensure you make all payments on time by setting up direct debits, as this shows you are a responsible borrower. Often these direct debits just cover the minimum payment, so if you want to clear your debt quicker you will need to make additional payments.

If you have never borrowed before, this can also work against you, because if you have never had a credit card or loan, lenders cannot review your track record to establish whether you are capable of sticking to a repayment plan.

You may need to build your credit history before applying for any major financial commitment. There are credit builder cards you can apply for that are designed to help demonstrate your repayment history and there is no interest to pay, provided you repay the balance in full each month. If you have an unused credit card, you can start using that to rebuild your credit record, rather than applying for a new one.

If you have had a joint finance arrangement and then split with your partner, ensure you financially delink as soon as your finances are no longer joined to stop their credit history affecting yours.

County court judgments stay on your record for six years and information about applications last for one year, so it may benefit you to hold off applying until old issues drop off your file.

POSITION TO APPLY

By following these simple steps you can rebuild your credit history over time. You should start by addressing past problems straight away, so that you will be in a position to apply for financial assistance from a bank when you find the right franchise for you.

Lenders with a specialised franchise department, such as Lloyds Bank, are the best bet for funding the franchise you are looking at. They will have a team of trained managers who understand franchising and are likely to have a track record of funding existing franchisees in the brand you are looking to invest in.

If you are finding it difficult to get credit, you may find it beneficial to apply to your own bank, as it already has an established track record with you.