Improve your credit rating

A bad credit rating can limit your borrowing options. County court judgments, defaulted payments and bankruptcy orders leave a black mark against your name when trying to secure credit.

Usually, the only means of credit available in these circumstances is through what is known as the sub-prime market, where would-be borrowers are charged high rates of interest to reflect the perceived risk to the lender.

Credit agencies

Most lenders go through two main credit reference agencies for information on your financial past – Equifax (08700 100 583) and Experian (0870 241 6212). This is Money offers this service at www.thisismoney.co.uk/ creditcheck.

They compile credit histories from a number of sources, including the electoral roll, county court judgments and how effectively past debts have been paid. Every time you open a new form of credit it will leave an electronic footprint on your record. The decision to turn borrowers down for credit isn't made be Experian or Equifax but by the lenders, based on their own criteria.

Data protection

If a lender refuses you credit, it must say why. Under the Data Protection Act, if you are refused credit, and scoring was used to help the lender decide, you can ask for a review of your application.

This gives you the chance to review your rating and see where it may need improving. Alternatively, it gives you the chance to point out mistakes that may be on your record.

All is not lost if your rating is poor - although it may take time to repair. Bankruptcy details remain on people's ratings for up to six years, although it should take a year of good credit practice to return a rating to health.


Where to start

The first thing is to make sure all your payments to creditors are made on time. If you are forced to miss a payment, make sure you tell the creditor and the payment is made the following month.

Also, simple measures such as making sure you are on the electoral role or filling out credit application forms correctly will help boost your rating.

You should also buy your credit history from the ratings agencies and make everything is correct and up to date. For example, if you have paid a debt that was the subject of a county court judgment, make sure it is shown on the file.

You can do this by post for £2 or This is Money offers an online credit rating service.

If a bankruptcy order is annulled ensure a copy of the order of discharge or annulment is distributed to credit agencies.

Lenders can also search your credit report more than once during a single application and if this occurs you should again alert credit reference agencies.

Reference agencies also allow people to explain why they may have had a period of poor credit performance. Consumers can attach a 'notice of correction' on their report explaining why they missed payments.

What does my credit score tell me?

Your basic credit score tells you very little and is pretty useless. It will be a number that indicates whether you are a good or bad payer of bills. For example, with Equifax, a score below 299 is very poor, 300-349 is poor, 350-399 is fair, 400-474 is good and above 475 is excellent.

To get a better indication of how you can improve your credit score, you need to take out a more detailed (and expensive) credit report. It costs from £12. With this, you get a full list of your credit agreements.

How do I improve my score?

There are some basic checks you can make to improve your rating:

• Make sure all your debts are registered to your correct name and current address.

• Close credit cards you don't need.

• Ensure there are no other mistakes on your file, such as other people's debts or payments.

Other tips

One of the more alternative ways of boosting your rating includes taking store cards and paying off the balances on a regular basis. Opening a variety of accounts will speed up the process, but be sure to clear balances regularly to avoid sky-high interest charges.

It may be worthwhile asking a family member or good friend with a good credit history to co-sign for a small loan or credit card. This will re-establish good credit in your own name.

It takes some time for your new credit history to gain momentum, but it will help prove to lenders that you are reliable and credit worthy.

Another tip is not to keep applying for credit if you have been refused by other lenders. A large number of searches on your credit history can make matters worse, so make an application only after you have confirmed with the lender that you fit the profile of people they lend to.

Many people complain they have never applied for any credit - and therefore had no credit problems - yet have still been rejected. Bizarrely, the credit industry feels more comfortable dealing with people who have a track record of paying off credit so you do actually have more chance of making a successful application if, for example, you have taken out a mortgage or loan previously.

10 Things You Didn’t Know About Credit Reports

Think you know everything you need to know about borrowing and credit? Think again. Many of us are surprisingly uninformed about the information that goes into deciding who gets to borrow what. We’ve debunked some of the more pervasive credit myths and collected a few of the lesser-known but more important facts to help you get your borrowing basics straight.

1. Previous occupants of your home have no affect on your credit rating
Pub bores often put this nonsense about and a recent survey showed that 71% of people believe it, but it’s completely untrue. The previous occupant of your house or flat could have been a millionaire or a bankrupt but that makes no difference to lenders at all.

2. Family and friends living at your address cannot harm your credit rating…
Until a few years ago, lenders checked the credit reports of others living at your address, taking their finances into account when deciding whether to offer you credit. This is no longer the case. The people with whom you share an address (but no financial responsibilities) have no bearing on your ability to obtain credit. So for the 63% of you who think they do, they don’t.

3. … But your partner or financial associates can
The people with whom you share financial responsibilities, such as joint accounts, credit cards and mortgages, are referred to as your financial associates. Their names appear on your credit report and lenders will check if they have had any credit problems before deciding whether or not to offer credit to you.

This means you are strongly advised to take a look at the financial history of anyone with whom you enter into a shared financial responsibility, as their past will affect your future.

4. Credit reference agencies do not decide your credit rating
53% of you think they do, but they don’t. Credit reference agencies collate the information held in credit reports and hold it securely, but they don’t have anything to do with deciding your credit rating. Lenders do this, using the information held in your credit report and that submitted by you in your application form.

5. There is no credit blacklist
A staggering 41% of you are convinced that someone, somewhere, holds a very long list of credit baddies. You’re all wrong.

Ruling out whole streets or estates, or ‘red-lining’, as it’s known, simply does not happen. And while we’re on it, your credit score does not take account of factors such as gender, religion, race or ethnic origin.

6. You have more than one credit rating
You can have many different credit ratings, depending on who you apply to, what you apply for and your circumstances at the time you apply. Every lender uses a slightly different equation to calculate a credit score, and some use different versions for different products. Your credit rating also changes when your circumstances change. For example, paying off a debt could improve your score, while missing a series of repayments could damage it.

7. You can be turned down for credit if you haven’t borrowed enough...
You’d think lenders would love a customer with no debts, but they actually rely on the details in your credit report to show them you make repayments on time. If you have no track record, they cannot tell how you might behave in future and could decline to lend to you as they have no evidence you manage credit well. The solution? Borrow wisely, repay on time and build yourself a nice little credit history.

8. … But you can also be turned down if you’ve applied too often
Every time you apply for credit, the lender dealing with your application makes a full search of your credit report. This leaves a search footprint on your report. Make enough applications and the profusion of search footprints could lead prospective lenders to think you are overstretching yourself, desperate for money, or even that fraudulent activity is taking place.

To avoid this problem, when applying for any kind of credit, specify that you want a quotation and make it clear that you are not making a full application. This will prevent unnecessary footprints from marking up your report.

9. Your profile may matter more than your score
Many lenders target specific groups of people – home owners, students, older people and so on. Regardless of how high your credit score is, if your profile doesn’t fit their template, you may find your application is turned down. To give your application the best chance at success, do your research before you apply and identify lenders who want to deal with people like you.

10. Your vote counts… sort of
From a credit perspective, it doesn’t matter if you vote or not, but it does matter that you are registered to vote, as lenders check local electoral registers to verify that you are who you say you are and live where you say you live. They also look for stability – ideally, that you’ve lived at the same address for some years. If they don't find your name at your address, they may make further checks or just turn you down.

If you’re not yet registered to vote, ask your local authority for a rolling registration form. This will enable you to register at your current address and de-register from any old ones.

Tips for boosting your credit score

If you're thinking about buying a house or a car, your credit score is a very important number.

The interest rate you'll pay for the money you borrow will be determined, in large part, by this three-digit number that's generated from the information in your credit report.

Most lenders have carved-in-stone rules about handing out the best terms, and those rules almost always place a major emphasis on your credit score. If their best rates are offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars.

According to www.myfico.com, the consumer Web site of the Fair Isaac Corp. that created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is about one-third of a percentage point.

On a $165,000 30-year fixed rate mortgage, that third of a point could cost you more than $11,172 in interest charges, assuming 629 percent is the lowest rate available (see Bankrate's calculators). Fall below a 660 and the rate goes up another .81 percent.

Keep in mind that these are averages. Most lenders today practice tiered pricing, with interest rates rising as scores go down. Each lender chooses its own "break points" between tiers. Lender A may bump up the interest rate if a score falls below 700, while Lender B doesn't charge higher rates until the score is 690 or below. So if you stick with one lender, and that lender's break point is 700, raising your score from 698 to 701 can be vital.

This underscores the importance of not only doing all you can to improve your score, but shopping thoroughly when looking for a mortgage. From the perspective of a mortgage broker, who can choose among a sea of many lenders, there are no sharp break points. Consumers should do what a good broker does -- look for a lender that offers the best rate for a specific score.

But that's jumping ahead of ourselves. First things first: You can take steps to improve your credit score. The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines.

"The mantra for getting a great score is pay your bills on time, keep account balances low, and take out new credit only when you need it," says Craig Watts, consumer affairs manager for Fair Isaac Corp.

"People who do that faithfully have very high scores. It usually means you're being conservative and cautious about credit. It's not a toy and it shouldn't be a hobby."

Speedy upgrade
That's good advice, to be sure, but these actions take a long time. What if you're house hunting and you just need a few extra points to bump you over the line to the great rates?

Start by pulling your credit report and your credit score to see where you are. To get an estimate of your credit score, check out our Credit Score Estimator. If your score is above a 760, you're golden. Improving your score from 760 to 800 won't get you better terms.

The great credit card scandal

Companies defy ministers by increasing charges despite plunging interest rates
By Kate Hughes, Deputy Personal Finance Editor, and Andrew GriceTuesday, 9 December 2008

Credit card companies are facing an investigation by competition watchdogs after defying government warnings to improve their lending practices.


An analysis by The Independent has found that the cost of card borrowing has risen over the past three months despite three cuts to the Bank of England base rate. Cardholders are now facing average interest rates of 17.7 per cent on credit cards, up from 16.6 per cent 12 months ago.

The Business Secretary, Lord Mandelson, had given providers two weeks to come up with fair principles to help cardholders manage their debts following a summit with card providers in November. By Thursday, the Government is expecting proposals from the industry on how it will implement fair principles on existing debt, responsibly provide credit and support households in difficulty.

Failing to do so could see the card companies facing investigation by the Office of Fair Trading (OFT), but so far card providers have made no move to reduce the expensive lending rates which so often plunge debtors into further financial hardship.

One government source said last night: "We are not backing off. If the companies don't move, if necessary, we will go down the OFT route."

Only two cards, those designed to track the base rate, have reduced rates since Lord Mandelson's ultimatum and Yorkshire Bank and Clydesdale Bank have gone ahead with increases to the rates and fees they charge their Gold Mastercard customers. Halifax and the Bank of Scotland have also increased balance transfer fees.

A spokesman for Clydesdale Bank said: "The changes in our rates were announced in October and our rates remain very competitive. We fully support the Government's initiatives for helping people in difficulties."

Store card debtors are facing even higher rates despite cheaper borrowing for lenders. The average cost of borrowing is now 25 per cent a year, up from 23.9 per cent this time last year, with no sign of a cut in rates even though the base rate has dropped from 5.25 per cent to 2 per cent over the same period.

But based on the industry's response this week, Lord Mandelson and the Consumer Affairs minister Gareth Thomas are expecting to produce a plan to address the dramatic increases in some cardholders' bills.

A spokeswoman for the Department for Business, Enterprise and Regulatory Reform said: "We've asked lenders to report back by the end of this week and have been in continuing talks with industry following our summit [on 26 November]. We have every expectation that industry will come back with proposals to stop the pockets of bad behaviour that we have identified in risk-based repricing and will continue to work with them to ensure borrowers are treated fairly, responsibly and consistently."

Vince Cable, the Liberal Democrats' Treasury spokesman, said: "The Government has got to get tough with credit card companies determined to make a quick buck out the millions of people struggling to make ends meet. Tough words are worthless unless they are backed up with real action."

Alan Duncan, the Conservatives' business spokesman, accused ministers of pumping out "hot air". He said: "The Government's policy after the banks' bailout has clearly not reached the credit card sector. It has done nothing to clamp down on credit card ownership – particularly by the most vulnerable people."

Industry leaders have been summoned to another meeting with Mr Thomas on Thursday.

Apacs, the UK payments association, denied interest-rate rises were the problem. "Risk-based pricing is not about the base rate at all," said a spokeswoman. "This is about a customer with a card whose APR may go up as a consequence of changes to their circumstances. It is a feature of credit cards that the interest on this unsecured borrowing may be adjusted. If the customer can't pay, the provider has no security on getting the money back and may decide to re-price the cost of using the card. The agreements that were made [at the summit] were about breathing space for customers in difficulty."

Critics of the move believe a half-hearted approach will make little difference to consumers. Martin Lewis, of Moneysavingexpert.com, said: "This ultimatum is absolute nonsense, and shows that Lord Mandelson has never had any connection to credit cards in his life. Is he saying that credit card companies should drop their interest rates in line with the base rate drop, from an average of 18 per cent to one of 15 per cent? To make this work they would actually have to cut their interest rates by 60 per cent to mirror the real changes in the base rate, so if even if every credit card on the market took 3 per cent off their interest rates it would mean nothing."

Credit and store card companies have long been accused of employing dirty tricks to boost income. The order of payments is regularly skewed so that the most expensive debt, with the highest interest rate, is paid off last.

Select the best credit card deal

Credit Card Searcher is an independent service designed to make it easy for you to select the best credit card deal for your individual circumstances and requirements.

You can use the search facility above to compare deals on purchases, balance transfers and rewards from all the leading UK credit card issuers including American Express, Barclaycard, Cahoot, Egg, Capital One, Halifax, HSBC, Intelligent Finance, MBNA, Morgan Stanley, NatWest, Royal Bank of Scotland, Virgin plus many others.

The rates listed are updated daily, and all of the cards we list provide an online application facility.

Simply select some criteria from the compare facility above, click the red button, and we'll give you a tailored list of UK credit cards from a selection of leading providers. Review each product, then select and apply online when you've found the right one for you.

0% Credit Card Rates For New Customers

Many credit card providers now offer an introductory interest rate which is fixed below the card's standard rate for a limited duration. The rate tends to very competitive in order to attract new customers, but will revert to the standard rate when the introductory duration ends. Use the search facility above in order to determine the latest 0% credit card deals.

Credit Card Balance Transfers

If you've got a card with a hefty balance carried over each month, you should consider moving the debt to a different company. Several issuers offer 0% APR on credit card balance transfers. The honeymoon period usually lasts around 12 months, although some of the best credit cards for balance transfers offer interest free rates for as long as 13 or 15 months. This can provide you some welcome breathing space in which to pay off your debt without accruing interest. When the grace period ends the APR reverts to the standard, which varies, depending on which UK credit card you choose and your credit rating.

Individuals who are worried about debt should change to a card charging 0 per cent on balances for an introductory period and aim to clear what they owe within that time period. If this is unlikely, go for a card which offers a low rate until the balance is completely cleared.

Balance transfer fees can be a sting in the tail, so make sure you take these into consideration when you compare rates.

Low Interest Credit Cards

Many consumers continue to pay far higher rates of interest for spending on their credit cards than the current average APR. By simply changing to a different provider they are likely save a significant amount of money each year in interest.

People who have stayed loyal to their bank and never changed their credit card are more than likely being charged excessive rates of interest. With lower standard rates and introductory 0% offers for purchases and balance transfers available, now is the time to switch to a low interest credit card. It's never been easier to switch deals, and there is a wide choice on offer.

Ten ways to cut the cost of Christmas

If you exploit good deals and avoid the bad ones, then the credit crunch does not have to mean a gift crunch, find Nargis Ahmad and Julian Knight

Christmas can send a shiver through our finances. Each of us spends about £400 on yuletide presents and festivities, according to Asda. But with unemployment rising and credit both expensive and harder to get, Britons are looking to cut back – by up to £300m in total, says the Centre for Economics and Business Research. But what tactics can you adopt to make Christmas less expensive without being a credit-crunch Scrooge?


1. Look for card cashback

Many people spend more than they expect on plastic at this time of year. If that's you, look to use one of the cashback credit cards on the market. The American Express platinum card returns 5 per cent on the first £4,000 you spend in the first three months you have the plastic. Abbey's new "essentials" card offers a 3 per cent refund, up to £75 or £12.50 a month, on supermarket and petrol purchases at selected outlets for the first six months. But take care: fail to clear the outstanding balance within the interest-free period and you will be hit by high rates.

2. Get cashback on the web

Combining a cashback credit card with a cashback website could earn you even more. Sites such as Topcashback.co.uk, Greasypalm.co.uk and Quidco.com offer shoppers an additional rebate of 2 per cent to 10 per cent, but you will need to set up an account first. Some sites will only release the money once you have earned a minimum amount, and it takes time for the cash to reach you.

3. Price-comparison websites

These services can also help you to find the cheapest deals. Sites such as Pricerunner.co.uk and Kelkoo.co.uk search the web to find which stores sell what you are looking for and at what price.

4. Make use of vouchers

To save a few bob at online retailers' virtual checkouts, it's worth getting your hands on a voucher code. These can be found on sites including My-vouchercodes.co.uk, Hotukdeals.com and vouchercodes.com. It's also worth keeping an eye on forums such as Moneysavingexpert.com. Once you have found a code, all you need to do is type it in at the checkout to get the discount. But be quick, as most codes expire quickly.

5. Redeem loyalty points

Many of us will have built up pots of money on our supermarket loyalty cards, which are just waiting to be spent. Rather than using the points at the checkout, switch to vouchers, perhaps trading Tesco Clubcard vouchers for Deals Tokens through the Tesco site. These can be used for trips to the theatre, days out and jewellery, which can make nice Christmas presents.

6. Switch to Christmas ecards

Save on the cost of cards and stamps by sending a free ecard online from sites such as Ecards.co.uk or Hallmark.com. For the ethically conscious, charities now do their own ecards. Friends of the Earth is encouraging others to ditch the paper version and save trees at www.foe.co.uk.

7. Sell unwanted gifts

If last year's dud Christmas presents are sitting in the loft somewhere, now's the time to turn them into hard cash. According to a survey by Churchill Home Insurance. 21 per cent of us will sell out unwanted gifts via the internet or at a car boot sale, and 14 per cent will recycle our presents, passing them on to someone else. You can flog your clutter from the comfort of your own home by selling at an online auction site such as eBay or eBid.

8. Avoid in-store credit

We've all been there. That expensive gift that will make a loved one's Christmas can be yours at a discount, provided you take out the store card offered by the smooth-talking salesman. But store cards are expensive, often charging 30 per cent interest. And like cashback cards, if you fail to pay off the debt within the interest-free period, it can soon eat into any initial discount given for taking out the card.

9. Bulk buy wine

Lots of off-licences and wine clubs offer deals to those buying a case of wine rather than a bottle. Tesco's wine store has substantial discounts in the run-up to Christmas and free delivery nationwide on orders worth £100 or more. Likewise, Majestic.co.uk is discounting mixed-case wine deals. If you're partial to a nice vintage, the recently launched lastdropwines.com buys its stock at auctions and closed busi-nesses and sells them at discounts of up to 50 per cent.

10. Plan your present buying

Even with Christmas around the corner, a little planning can help you to spend less by avoiding impulse buying. Money advice website Fool.co.uk recommends making a list of who you want to buy for and setting a budget for each. If you think you're going to find that difficult, says Fool.co.uk, consider giving what you would spend on a present as a simple cash gift. After all, in these credit-crunch blighted times, cash is always welcome.

How To Get Your Free Credit Report

You're entitled to one free credit report per year, here's how to go about getting it.

Under the Fair Credit Reporting Act, you're entitled to one free credit report every year. Here's how to go about getting it.

They say the best things in life are free, and these days, a free credit report is just what we need. Many people are finding that in order to get a good deal on a loan, they need a pretty stellar credit score. And the only way to know your credit score is to check your credit report.

Seven Steps To A Higher Credit Score

Not only will reviewing your credit report help you get an idea of what your credit score may be (you do have to pay for your actual credit score), it will also allow you to confirm that all the information is correct. One small mistake on your credit report could seriously affect your credit score and potentially cause your rates to skyrocket.

There is only one place to get your free, federally mandated credit reports, also called an "educational credit report," which this is AnnualCreditReport.com. You are allowed a free credit report from the three major consumer reporting agencies in the U.S." Experian, Equifax (nyse: EFX - news - people ) and TransUnion. These sites also offer credit reports, but you have to pay for them. When you go to AnnualCreditReport.com, you are given the option to get all three reports at once or one at a time. Choose to get all three reports at once. Gerri Detweiler, author of the book Stop Debt Collectors, explains that when you apply for a loan you probably won't know which report a lender will use. So if there is a mistake on one, you'll want to know.

You've probably seen commercials for a "free credit report" (you may recall that guy playing his guitar in the seafood restaurant lamenting his predicament). Be aware that these companies will give you a free credit report and/or credit score initially, but they will also most likely also ask for your credit card number. If you don't cancel within a certain time, they'll charge you for membership.

Checking your credit report is called a soft inquiry, and you can check your credit as much as you want without it negatively affecting your credit score.

Give yourself credit: How to keep it

Your bank may have a gift for you just in time for holiday shopping: no credit.

According to R.K. Hammer, a bank-card advisory firm, credit-card issuers suffered $41 billion in losses in 2007. This year, the total is estimated at $56 billion. Now, companies are reducing card limits, closing inactive accounts and tightening standards for new credit.

Here's how to make sure you hang on to your credit:

*Keep balances low: Banks always have been able to reduce a card's line of credit, but today any number of reasons can trigger a reduction, including a high balance.

*Making payments: Pay down the balance as much as you can. About a third of the FICO score, the credit rating lenders most commonly use, is based on how much of your credit you use. It's generally a good idea to keep balances below 50 percent of each card's credit line.

*Use cards wisely: Spread charges across cards, instead of lumping them all on one. That will help keep each card balance low and reduce the risk of having your card closed. Banks have begun canceling inactive accounts or cards not used regularly. A cancellation can hurt your score by lowering your total available credit and shortening your credit history.

*Open credit sparingly: New credit can be a drag on your score, especially if you open multiple lines at once.

*Call your issuer: If you come under the credit squeeze, don't hesitate to contact your bank.

Credit card holders still charged up to 17% interest as banks refuse to pass on rate cut

Bank chiefs came under fire today after being accused of ripping off customers by not passing on interest rate cuts to credit card holders.

Consumer groups said credit card charges bore no relation to the Bank of England's base rate, which fell to two per cent yesterday, the lowest level for 57 years.
Credit card customers are now paying an annual interest of 17 per cent on average, eight and a half times the bank's base interest.

Experts warned today that while banks have dropped some mortgage rates, they have not acted on high credit card charges.

The call came just days after Treasury officials met bank chiefs to persuade them to lower the charges. Both the Prime Minster and the Chancellor have also called for the full rate cut to be passed on to borrowers.

Eddie Weatherill, chief executive of the Independent Banking Advisory Service, said card issuers had been 'very sluggish' in dropping their rates.
He said: 'The rates do not reflect the base rate, they reflect what they want to lend at.'

Mr Weatherill also warned that, while monthly charges appear to be low, they were masking big annual rates.

He said: 'People have been conned by the rates charged for many years. If banks are borrowing money at two or three per cent and then charging one-and-a-half per cent a month they are making 15 per cent on their margins.
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'Nobody in government has got ahead of the game because they have loved these people making lots of money and taking lots of taxes from them, leaving consumers to themselves.

'They are not going to change the rates any time soon. It is a 'borrower beware' situation - you have got to look for a better deal for yourself. People have been apathetic because they have let the bankers and lenders get away with murder.’
The call to lower credit card rates comes amid fears that the second full percentage point cut in less than two months would have ‘very little short-term effect’ on consumer spending.

Neil Saunders, consulting director at consumer forecaster Verdict Research, compared the one per cent cut from the Bank of England's base rate to ‘facing a tsunami and holding up an umbrella’.

He said: ‘It's not a solution. It's about trying to ease some of the decline, making sure the eventual landing is not too harsh and managing for the longer term.

'If the Bank of England had wanted to ease some of the pressure on the high street they would have had to act six to eight months ago.’
Uswitch, a price comparison service that finds consumers the best deals on credit cards, said the rates were ‘heading in the wrong direction’.