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Top tips to reinvigorate your credit rating

In a financial climate where banks have become meaner and stricter about who they are prepared to lend to, it's more important than ever that your credit rating is in tip top shape.

Faced with rising costs of energy, petrol and falling living standards, many people have suffered a mishap or two in the past few years which could jeopardise future chances of getting a loan.

It’s more vital than ever that you check the information held about you with the credit reference agencies and do all you can to ensure all is in order.

The premise that each individual has a single credit rating is a myth as every individual lender scores you based on its “ideal customer” profile. Nevertheless, they all share data and use credit reports to help them decide who they want as customers. You need to demonstrate you’re a safe bet or risk paying higher rates of interest, or worse still, being denied.

“Your credit report is used by lenders to gauge how well you manage credit, if you pose a creditworthiness risk, and it influences the rates you get.” says Peter Turner, managing director at Experian Consumer Services.

There are a few simple steps you can take to reinvigorate your credit rating, ensuring it is in the most favourable condition.

Paying on time

It's essential to pay mortgage, credit card, mobile phone and utility bills on time - even a single late payment can affect your credit rating.

Electoral register

Their first job of a credit reference agency is to verify an applicant's identity, usually using the electoral roll. Make sure you are registered on the electoral roll at your current home address. If you do not appear, you will find it very difficult to get any credit. Consult with your local council to ensure that you are listed or visit aboutmyvote.co.uk.

Check for mistakes

Lenders take credit reports as gospel so it's imperative you check all is fully accurate and up to date. If you see anything that is incorrect, dispute it with the credit reference agency.

"The chances are that any inaccuracies will be against you, rather than in your favour," says Ray Boulger, of mortgage brokers John Charcol. "It's all computerised and so there's lots of room for errors."

A survey by consumer association Which? back in 2007 revealed that one in five entries on credit rating files may be wrong. A sample of 1,500 customers checked their files and a staggering one in five found mistakes that could harm their credit rating. Inaccuracies included incorrect reporting of missed payments on loans or credit cards.

Notice of correction

If the blips you have experienced were as a consequence of special circumstances such as redundancy, family bereavement, a period of ill health etc, you have the opportunity to explain this on your report by adding a notice of correction to any late payments. This will be notice will be available to lenders and they may take it into consideration when assessing your application.

De link previous financial associations

Financial associations are shown on your credit report, so if you once had a mortgage in joint names or a bank account with an ex partner – or even a flatmate – then be aware, their credit status can impact on yours if they are still linked with you.

So if you've divorced or split up with someone you shared an account with, once the accounts are  no longer in joint names, contact the credit reference agencies and request that you are “de-linked”.

Don't max out credit cards

High credit utilisation is something which usually makes lenders anxious. So if you’re at or near your current limits on your credit card, and apply for a further a credit card or loan, this is likely to count against you.

"Now they are looking at people's overall debt position and signs of possible future difficulties. Having cards with high limits or having a relatively high number of cards - more than four or five - will both ring warning bells says Neil Munroe from Equifax.

Close old accounts

Having access to a lot of  untapped credit can count against you. Close accounts you no don't anticipate ever using.  Simply cutting up an old credit card is not sufficient. You need to approach the card company and tell them you want to close the account.

However, keep hold of any long standing bank accounts, as a sustained period of banking history can be valuable.

Time your applications carefully

Every time you apply for credit, a  record of the credit search is added to your credit report, and many searches in a short space of time could hurt your score as it makes you appear desperate for credit.

Consumer champion Martin Lewis says: “This can get you into a “rejection spiral”. So space out applications, not just for credit, but for car insurance, and even mobile phones – as it can all leave searches on your file.”

CCJs

If you’ve had court action taken against you for an unpaid debt and have been issued with a CCJ, this will remain on your credit report for 6 years. However, if the debt is now settled make sure the settlement is recorded on your credit report. You can contact the court to get confirmation details and inform the credit reference agencies. A note that the CCJ is settled will help to a limited extent and is certainly a better than it showing as still outstanding.