A lender will need to see a strong credit file before considering giving you a loan.
If you are considering asking a lender for a mortgage, loan or other credit, then your first port of call is probably a look at your credit file. This is the first thing that lenders look at when evaluating your application. It is important that your credit file shows you in the best light as possible, as it will determine whether you get the credit you want or not.
A credit file is like a look back into your financial past, showing the lender any missed payments, CCJs, or bankruptcies. They can also show a lender whether you have applied for lots of loans recently or not. Such activity could be deemed negative as it looks like you are desperate for money, and therefore may not be as savvy with your cash as the lender would like. The lender ultimately wants to ensure you’re not too “risky” and you will make the relevant repayments appropriately.
If you look at your credit file and it shows something which may be viewed negatively, don’t despair. You can ‘correct’ your credit file over time and get it looking positive again before you make your loan application.
Learn Money says that it can take anywhere from 6-18 months, when certain steps are made, to improve your credit rating. They say, “Unfortunately many people have a tarnished credit rating, even those with well paid jobs, little or no debt, and money in the bank.”
Steps to Improving your file
The first goal is to make sure all your personal and financial information is correct. Look over your details like your address, date of birth and dependants, and check for any errors.
Secondly, you’ll need to understand how a credit file works. You need to essentially borrow money, repay it on time, borrow money, then repay it on time, for your credit file to get a lot of positive repayment ticks. So if you can get out a credit card, spend a minimum amount, then repay it in full each month, you will see a dramatic improvement on your credit file within 6 months to a year. Remember that spending money using a debit card will never improve your credit file because debit cards don’t offer credit. Additionally, if you have a mortgage, a mobile phone contract or any other credit agreement, it’s vital that you make sure all those monthly payments get paid on time.
Make sure that you look after your finances and save money where possible, so that if a sudden bill hits, you aren’t relying on credit, allowing your credit file to take the hit. Wonga’s money saving blog has various tips for saving money, which can be useful to refer to. You will be surprised at how little changes can make a big difference, like turning the lights off at home, ditching the daily coffee at the café, or walking instead of driving.
This positive attitude to money will slowly alter your way of thinking and you will realise you are using less of your overdraft, are staying within your spending limits and as such, your credit file will also be impacted for the better. There is no ‘quick fix’ to improving your credit file, but if you are dedicated, you can change it over a year. You can also check on it during this time to watch your credit score improve as you go.
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