How to Build a Better Credit File

Like it or not, your credit history eventually takes on a life of its own. As long as you stay on the positive side of things, the fate of your credit file is in your hands, reflecting your good habits borrowing money, repaying debts, and managing revolving credit. Unfortunately, once your record includes negative entries, such as delinquent payments, default, foreclosure, and other credit inconsistencies, you quickly lose the advantages of a pristine credit file. Once damaged, it can be hard to repair your reputation. And the process takes a long time.

Whether you’re just getting started establishing a positive credit rating, or you’ve been active in credit markets for a substantial length of time, the moves you make have an impact on your score. It’s never too late to improve your credit file, and it’s particularly important to preserve it, early on. These are only a few of the things you can do to fortify your credit score and keep history on your side.

Stay Informed

Information moves at a blistering pace in modern financial markets, so it’s important to keep tabs on your credit file. Inaccurate entries, identity theft, and other errant activities can leave your consumer reputation in tatters. The sooner you address problems such as these, the more likely it is you’ll emerge unscathed. And when you do have credit problems, by your own hand, knowing where you stand can help you get a handle on issues, before they grow into larger hurdles.

Periodically checking your credit file protects you from surprises. In the UK, three main credit references agencies (CRAs) maintain information about your finance history. Though the data should be similar across agencies, each one keeps its own record, so you may wish to request a copy of your credit file from all three. CRAs have a statutory obligation to provide the information, either online or in written form, if you request it. Your credit file contains facts and figures about your finances, such as:

  • Name
  • Past and current known addresses
  • Date of birth
  • Credit accounts
  • Joint credit
  • Public record information about bankruptcies, house repossessions, and individual voluntary agreements
  • Overdraft details

Close Unused Accounts

When you apply for credit, lenders use information from your credit file to assess risk. They are interested in the amount you owe, and also evaluate the overall number of credit accounts opened under your name. A file encumbered with unused credit card accounts, mobile contracts, store cards, and other unnecessary accounts works against you. Closing unneeded accounts can help boost your credit score, reassuring creditors you’re a reasonable risk.

Though a strong credit history is a plus, bad credit applicants are not left out of credit markets. Several short-term lenders extend funding to UK workers with blemished credit records. Even without perfect credit, you may be eligible for fast cash, funded by lenders willing to overlook bad credit, in exchange for payday guarantees.

Pay on Time Every Time

More than any other feature contained in your credit file, timely payments are essential for maintaining a positive history. From your earliest credit relationships forward, paying on time helps you build a favourable track record. Each time you satisfy a credit responsibility, by paying according to the terms of your credit agreement, it preserves your reputation, making future lenders more likely to approve your requests for financing. Conversely, delinquent payments ultimately drag down your credit score, reducing your access to future credit opportunities.

Major missteps, such as house repossession and loan default have a years-long impact on your credit file, so every available measure should be taken to avoid these harmful outcomes. When a financial shortfall appears on your horizon, don’t delay, contacting creditors. You may be able to work out alternative payment plans that protect you from negative credit reporting.

Balance Available Credit

The number of pounds you owe is an important figure, in the eyes of creditors, but lenders also consider percentages, when evaluating your credit strength. Although using credit and making payments does help build and preserve a good credit rating, maxing-out available credit has the opposite effect on your file. According to a recent article, it’s best to limit the amount of utilized credit to 30 per cent of your overall available lines.

Your credit file follows you through life, so it’s important to protect yourself from the harmful impacts of credit damage. Left untended, with negative reporting on your record, a bad credit file can take on a life of its own, interfering with future financial activities.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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