Can you help resolve credit rating catch-22?

Dear James,

How can you be a good borrower when you can’t get credit in the first place with bad credit rating? Confused!

Kim, Southampton

Dear Kim,

I understand your confusion. It can sometimes be a challenge getting credit with a poor credit rating, whether this is because you have little credit history or a damaged one. When they carry out a credit check, what lenders are looking for is confirmation of your name and address, evidence you can be trusted to manage credit responsibly based on your borrowing track record and confirmation that you can afford to take on more borrowing. So, if you’re building a credit history from scratch, it’s important to register on the electoral roll and then look for opportunities to demonstrate your creditworthiness. Getting a bank account is a good start as most banks now share information about how customers manage their current accounts. If you stay within your agreed overdraft limit and avoid having cheques bounce and direct debits refused this will help you build you some positive information on your credit history. To help bolster this information, there are a range of credit cards aimed at people with less-than-perfect credit ratings. These can certainly help you repair a damaged credit history too. Obtaining and using one of those sensibly should strengthen your credit history still further. And though these will typically charge higher rates of interest than more regular cards, if you repay any borrowing each month in full, you’ll avoid any interest payments. As most organisations that provide money, goods or services via credit facilities are sharing payment information through credit reference agencies like Experian, even setting up utility accounts or getting a contract mobile phone can help you further boost your credit record. Once you have built up a body of evidence that you’re a trustworthy borrower, you should find that doors open to a much wider selection of credit products. So there are certainly plenty of opportunities to build a great credit history – you just have to be a little canny about how you approach the task. If your credit rating is poor due to past bad debts, make sure these are repaid and your report is updated to show this, Their influence on your credit rating is likely to dwindle over time and, if you play your cards right, will be quickly overshadowed by more recent positive information. You can use the Experian Credit Score to track your progress, whether you’re building a new credit history or repairing a poor one. (November 2013)


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