As you are probably aware, in order to have access to the best credit card deals on the market you need to have a good or excellent credit score. However, the reality is that most of us do not have the best credit ratings due to missed bill payments or applying for too many credit cards, etc. Although not ideal, this is not the end of the world because there are ways to improve your credit score and get access to better credit card deals.
Starting from scratch
Lenders use your previous information (credit history) to help them judge your character and your behaviour towards money and borrowing. If you do not have any credit history because you have never accessed credit, you will have a poor credit rating. It’s a bit of a ‘catch-22’ really (in the sense that you need access to credit but find it harder to get a credit account because you haven’t had one before) so you need to find ways that your credit rating will be improved, and there are a few ways to do this.
However, whatever you do, it is absolutely essential that you keep to the payment terms, never miss a payment and try to pay off the balance in full to avoid interest charges.
Fixing what is broken
If you have a poor credit rating because of past problems it is never too late to start trying to fix it.
The first thing you need to do is contact a Credit Reference Agency, such as Experian, Equifax or Callcredit, to view your credit report. A credit report allows you to see what lenders see and so you can work out what you need to do to improve your credit score. The actions that need to be taken to fix a bad credit rating due to previous problems are pretty much the same as starting from scratch. You need to open a variety of different credit accounts and use them as a vehicle to improve your credit score. This will help you get access to better credit card deals in the future, but it is a waiting game.
Cancelling unused accounts
If you have a number of unused accounts in your name, which have a history of bad payments on them, you need to close these as soon as possible as they will have a negative impact on your credit rating.
WARNING: If you have a bad mark (e.g. missed a payment or gone over your credit limit) from within the past 3 years on the account you are going to close, wait until it has dropped off your file before closing the account, or it’ll stay on your credit file for a further 6 years.
However, if you have had a bank account for many years and you have used it regularly, but perhaps more recently favoured an alternative account, it could be beneficial to keep this open. If you have outstanding balances on any of these accounts, find the cheapest way to pay them off and close the accounts.
Using savings
Using savings you have built up over a long period of time to pay off debt is often a horrible thought and a difficult pill to swallow. However, reducing the amount of outstanding debt you have against your name is key to improving your credit score. You will be better off both financially and in the eyes of the lenders if you pay off expensive debts with your savings. Also, you will more than likely be paying out more on interest on your debt than you will be making on your savings anyway. Plus, the current economic climate is making it particularly hard for people who still have a huge mortgage, so putting your savings into your house could prove to be the best way forward.
Keep up with payments
It is absolutely essential that you never miss payments on credit cards, store cards, utility bills or any other type of credit account. In order to improve your credit score you need to ensure that you prove yourself to be the perfect borrower. It is always better if you can pay off large amounts of the outstanding balance or the full balance, but if you are struggling at least stick to the minimum repayment.
Other things that will help to improve your credit rating:
1. Open a Credit Builder Credit Card
2. Register on the electoral roll
3. Start a mobile phone contract
4. Open a Prepaid Card with a ‘Credit Builder’ facility
Finding credit card deals
Once you have managed to improve your credit score you should have access to some of the best credit card deals on the market. Although it may be exciting, this isn’t a time to lose your head, make sure you examine the market and use your options wisely.
