How to repair a credit rating in 30 days

A good credit score can give us access to better interest rates and more financial products to help us buy the things we want.

Taking simple steps such as registering to vote and looking closely at our credit reports can improve our credit rating.

In addition, ensuring that we understand what to do if something is adversely affecting our credit score can help too.

Credit: one photo/Shutterstock.com

Overview of credit ratings

When we apply for financial products, credit reference agencies look at a number of factors to help lenders decide whether to grant our application. These factors are what we commonly refer to as our credit rating or credit score.

We don't have a 'number' credit rating system in the UK. Each lender weighs the product an individual is applying for - as well as the products they already have - against the information they hold about them, in order to reach a decision.

Credit reports include:

• Credit history details - including current credit accounts and details about defaults or missed payments. These details stay on a report for six years.
• Any past credit applications. These are kept for two years.
• Public record information, such as County Court Judgements (CCJs) and bankruptcies. These are available to view for six years.
• Personal information, such as name and date of birth, and the address a person is registered to on the electoral roll.

When a lender checks an applicant's credit rating, they are simply checking how likely it is that the applicant will pay back the money they want to borrow, or whether they will be able to pay for the product or service they wish to take out.

To increase the chances of being accepted for credit, we should take as many steps to improve our credit score as we can.

Over the course of a month, we can usually take several steps to rebuild our credit score and understand what might be affecting it.

Week one

The first week of trying to rebuild a credit score should be spent on some basic tasks that will help us understand where our finances currently are.

List credit accounts

Making a list of all our credit accounts can help us get a handle on how much credit we currently have - and how much of it we're using.

Include the following forms of credit:

• Mortgages
• Secured loans
• Unsecured loans
• Debt consolidation loans
• Car finance
• Overdrafts
• Credit cards
• Payday loans
• Guarantor loans
• Other short-term loans

Some people won't have any of these, and that's another reason why a credit score could be poor. Lenders prefer to see that borrowers have a credit history, as we explore in more detail below.

Knowing what lines of credit we have will help us when we come to check our credit reports later, but it's also important to know how much credit we're utilising on our credit cards and overdrafts.

Using more than 50% of our credit limit regularly can affect our credit score, so figuring out how high above that threshold we're going.

Get on the electoral roll

One of the easiest things anyone can do to repair their credit rating is to get on the electoral roll, which lists the names and addresses of everyone registered to vote within a certain area.

When someone is registered to vote it gives lenders a really simple way to see that their name and address check out. It doesn't take long to do and it's also free.

The process of registering to vote has been centralised on the UK Government website. Users will need some personal details including their National Insurance number to sign up.

Anyone who's unsure about whether they're registered or not can check with their local authority. The contact details can be found by checking a postcode on the Government website.

Note: Improving a credit rating requires consistency across different applications. To avoid problems, ensure the address used in each credit application is in the same format as the one listed on the electoral roll.

Order a credit report

The next task for week one is to order a credit report.

As noted earlier, a credit report consists of information that affects our ability to take out credit - including current credit agreements, public records like bankruptcies and address details.

There are several ways of accessing our credit reports:

• Order a statutory credit report for £2
• Sign up to a free trial with a credit reference agency
• Some banks offer ways to check our credit score

On this last point, these services offered by banks can be useful, but they might only give an overview and not allow us to delve into our histories fully.

So, taking a free trial from an agency (and remembering to cancel it after the free period) or obtaining statutory credit reports is potentially more useful.

Since 2010, it has been mandatory for credit reference agencies to provide £2 statutory credit reports, although agencies will often try to upsell us into free trials and contracts.

Taking one of those is not necessary if we don't want to: paying £2 for a statutory report with no ongoing financial commitment is perfectly fine to get an overview of a financial situation.

While getting access to our credit scores can be rapid in some cases, we might have to wait if the system needs extra help verifying our identity or if we want them in other formats.

Since there may be a delay on receiving reports, we'll return to them in week three.

Week two

Once we've set the wheels in motion to get on the electoral roll and get hold of our credit reports, there are other steps we can take in week two to help improve our credit rating.

Automate finances

In the long term, using financial products consistently and responsibly will help an individual to improve their credit rating.

That's why in the short term it's a good idea to automate as many payments as possible to avoid obvious 'black marks' on a credit report, like missed credit card payments.

The aim is to make our personal finances run by themselves, so here are some ways to achieve this:

• For those with a credit card set up a direct debit to at least meet the minimum repayment each month, or as much as it's possible to pay.
• Set up direct debits for as many outgoings as possible, such as utility bills and mobile phone contracts, to ensure the correct amount is paid on time each month.
• For people who have an arranged overdraft but exceed its upper limits, consider rearranging the overdraft or switching current accounts altogether to benefit from a better facility.

Even though banks can no longer charge high fees for accessing an unplanned overdraft, it's still better to avoid dipping into an unarranged overdraft. See if the bank will offer a small overdraft to provide a buffer zone to avoid this.

Assess unused lines of credit

Going back to that list we made in week one, we can check what lines of credit we're currently using and which might be unused.

This is particularly important if we have credit cards that we don't use very often, because those will still show on our credit report as an open line of credit.

In the past, it was better to close these unused lines of credit. The reasoning behind this was that it meant a person had access to high levels of credit and that could make them a credit risk if they suddenly decided to access all of it.

However, now credit reference agencies like to see that customers can handle multiple lines of credit and it improves that credit utilisation rate we mentioned above.

Yet there are still reasons we might want to cancel some unused credit cards:

• Reduce the temptation to spend beyond our means
• Keep better track of our finances
• Reduce the possibility of cards being used fraudulently

If we do decide to cancel credit cards, we must contact the provider directly to cancel the card rather than simply cutting the cards up.

Until the lender marks the card as cancelled, it could still be affecting our credit score.

Bear in mind that we might see a credit score dip when we close unwanted lines of credit. That's perfectly normal, especially if we're reducing our credit utilisation rate.

Week three

Once we have our credit reports in front of us, we can get a complete overview of how credit reference agencies are viewing our finances - and what they're using to make their decisions.

In week three, make it a priority to go through these reports and identify any problems.

Review credit reports

There are some basic yet crucially important things to look for when we look through our credit reports.

Ask the following questions:

1. Are all the personal details correct? Check names, addresses and the dates for moving home - are they all accurate?
2. Are there any financial inaccuracies? Do you recognise all the lines of credit on the report or are there some unrecognised lines that could point to identity fraud?
3. Are any payments listed as missed when they shouldn't be?

If any County Court Judgements (CCJs) or bankruptcies are listed there is no way to remove them, but they are automatically erased after six years.

Also look out for financial links with other people that could be causing problems, such as having a joint mortgage or bank account with someone with a poor credit history.

However, simply living in the same house as someone with a bad credit rating isn't enough to do any damage. Even being married or in a civil partnership might not be a problem, as long as there are no financial links.

Raise queries

If anything is amiss, it's possible to raise a query about a credit report with the credit reference agency. This is important because any inaccuracies will impact how likely it is that credit providers will accept us for a loan, mortgage, or other financial product.

After a query, the credit reference agency can update a report or remove some things, like a debt default, altogether.

As a last resort, complex problems can be recorded on a report in a 'note of correction'. This can help to improve a credit rating by explaining an unusual blip to prospective lenders.

We've seen research in that past that suggests only a small percentage of people query what's on their credit report, and even fewer apply for corrections.

While it can be a time-consuming experience, removing false information from our credit reports is one of the best ways to see a bounce over time.

It's important to note clearly here that credit reports list any outstanding debts that a person has as well as past debt problems.

If there's an issue with a debt that's still open, this can be rectified by contacting the lender directly, rather than the credit reference agency.

Week four

The best way to truly repair a credit rating is to prevent any future damage.

So, in week four that means laying down the foundations to maintain stable and consistent finances in the future.

Keep those good habits

Maintaining a good credit score or keeping our finances steady to help grow our poor score takes some practice.

Every decision we make about our finances can affect our credit score and may result in lenders checking our file including:

• Applying for new credit cards or loans
• Getting a new mobile phone or broadband contract
• Taking out a new insurance product
• Opening a new current account

So, we need to be strategic about the credit products we apply for and bear a couple of things in mind:

• Lenders value stability so applying for credit after a sudden change like moving home or starting a new job can be detrimental
• Making multiple credit applications in a short space of time is seen unfavourably by lenders who may view it as desperation for credit
• Applying for unsuitable credit products and being rejected can damage a credit score

If we're applying for a new credit card, selecting one that comes with an instant decision can mean the lender undertakes a 'soft search' on our credit record to see if we pass their basic criteria.

This can see us accepted in principle, but lenders will undertake a stricter check before offering us credit - and that can leave a mark on our credit file.

Consider credit building cards

Finally, it's worth considering products that are specifically aimed at helping to rebuild or improve a credit rating.

Credit building credit cards are one such option that can help to improve and strengthen a damaged credit history, as well as help to build a new one.

For those who aren't ready to make a credit card application, prepaid cards may offer another way to add positive marks to a credit file.

Prepaid cards aren't subject to credit checks because there is no real borrowing involved. In most cases the cardholder simply loads money onto the card and uses it like a debit or credit card.

However, some of these cards can help to improve credit ratings by essentially 'loaning' the cardholder a fixed amount of money, which is then repaid in monthly instalments. The repayments show on an individual's credit file as a positive payment history as we explain in our guide to prepaid cards and their positive impact on credit ratings.

Credit rating FAQs

Improving our credit score can help improve our lives, giving us more access to services and products we want, and ensuring we get better rates of interest when we apply for credit too.

However, there are a couple of common issues that might affect people looking to improve their credit score.

What if I don't need a credit card?

Some people will argue they don't need a credit card because they don't want to go into debt.

That's a perfectly reasonable stance to take but, unfortunately, credit reference agencies need to see how we handle credit before they will give us a good credit score.

If we take out a credit builder credit card and pay it off in full at the end of each month, we won't be getting into debt, but we will still be demonstrating to lenders that we can handle credit responsibly.

Remember that other factors affect our credit rating, so a credit card may not be necessary. If we're worried about the risk of overspending if we take one out, it might be best to avoid and take the hit to our credit score.

What if I can't open a bank account?

A current account is the cornerstone of our financial lives and it's the location where we can make payments and prove to credit reference agencies that we meet our obligations.

However, some people with low credit scores may find it difficult to get a bank account and can be stuck in a chicken and egg scenario where they can't build credit because they don't have a bank account but they can't have a bank account without a credit score.

For people in this situation, a basic bank account could be the answer.

Basic bank accounts are a legal requirement for major banks in the UK, with vulnerable and financially excluded customers able to apply for one and get themselves a current account.

What if my credit score is damaged by something else?

Even if we work hard to keep our credit score high, there may be some circumstances where it is damaged for reasons beyond our control such as:

• Bank glitch or error
• Identity theft
• Debt from someone financially linked to us

These last two points have been covered elsewhere in this guide, but it's worth focusing on what happens in the case of a bank error.

If a bank fails to make a payment when there is money in the account, it may still go down on our credit report as a missing payment - even if the bank has refunded us that money and rectified their mistake.

So, following a bank glitch, it's important to keep an eye on our credit reports for a few months to see if the missed payment appears on there.

If it does, we can apply to get it removed in the same way we would any other incorrect information we find on our credit records.

Summary: Steps to take

Our credit score is an important element of our financial lives, so making an effort to improve it can really pay off in the longer term.

When working to improve a credit score, remember that:

1. Getting on the electoral roll is one of the easiest ways to boost our credit score
2. Taking time to read our credit reports and correct any issues can improve our score
3. Proving we can use credit responsibly and not making too many applications looks good to credit reference agencies and lenders

The steps we've listed in this guide can help improve a credit score, yet it's important to ensure that credit is managed responsibly and carefully.

For people who are currently in debt, the prospect of improving a credit score can be daunting.

In these circumstances, it might be best to focus on improving a current financial situation and ensuring that payments are made on time.

There's more on budgeting and backwards budgeting in our dedicated guides, or learn more about where to get help with debt.

Finally, for those who have credit card debt but are trying to get on top of it and improve their credit score over the long term, compare balance transfer credit cards to see if there's a better deal out there.