Improving bad credit can seem like an overwhelming task, but it doesn't have to be. With the right tips and strategies, you can take control of your finances and start improving your credit file.

The first step in improving bad credit is understanding why your credit history is poor. Knowing what caused the credit issues can help you make better decisions in the future.

Why does a good credit score matter?

Having a good credit rating is an important part of obtaining a mortgage or other lines of credit. Lenders will assess your credit score/profile when you apply for a mortgage or credit and you must pass their internal credit scoring system to get a mortgage/credit accepted. Each lender has their own internal scoring system.  A better credit score makes it easier to borrow money and access the best rates.

Credit Report

Credit reports will tell you all you need to know about your credit record, all of your credit accounts will be on there, this includes all types of credit such as loans, credit cards, catalogues and cars on finance. Your credit report will also show your credit search history and address history.

It will also show how you have managed store cards, mobile phone contracts, TV subscriptions and other household bills.  There are several things that can have a negative impact on your credit report.

Common causes of bad credit include:

• Overspending and relying too heavily on credit cards
• Late or missed payments
• Too much debt compared to your income
• Defaulting on loans or other financial obligations
• Had a county court judgement (CCJ) in the last six years
• Debt management plans or Individual voluntary arrangement (IVA)
• Bankruptcy

Credit scores

Poor credit scores can be caused by several factors such as missed payments and default. If there is a default on your credit profile it is important to satisfy this as soon as possible. Multiple credit applications for loans and credit cards can also impact your profile.

Unpaid parking fines are one of the top sources of CCJs that we come across here at LTC Mortgages. If you do receive a parking fine it is important to pay this on time or if you wish to dispute it, you should dispute it through the correct channel. Please don't ignore these as they can have a massive impact on your credit profile.

It is also important to check your credit profile regularly as there may be discrepancies on your credit report. If there are any issues with your report it is important to get these rectified and amended. Checking your report regularly is also a good way to identify fraud if this was to happen.

IVA and bankruptcy will have a massive impact on your credit profile, they show you’ve had difficulty repaying debt in the past, so they may see you as a high-risk customer. As a result, you may be rejected or charged a higher interest rate.

Improving your credit score

Once you understand why your credit rating is low, you can start taking steps to improve a bad credit score. Here are a few tips:

Pay all your bills on time – It is vitally important to make all your payments on time, whether they are credit cards and other loan payments or utility bills. Delayed payments can remain in your report for up to seven years; therefore, ensure you pay them promptly. Consistently paying off debts will help improve your credit score. To avoid a missed payment or late fees, consider setting up a direct debit to make regular payments. This will help you to pay your bills on time.

Lower your credit card utilisation – This is the amount of credit you are currently using compared to the total amount of available credit. Aim to keep your credit utilisation up to and below 30%. Close down any unused credit card /old accounts. Utilising a credit card and paying off the balance in full every month is much more favourable, as it demonstrates that you can manage your money. Most importantly don't exceed your credit limits.

Dispute any errors on your credit report – Contact the creditor or agency that reported the mistake, and provide documentation of why it’s incorrect. Make sure to keep a record of your dispute.

Check your address history - Your address history can impact your credit profile, it is important that you update all creditors with your correct address and update the electoral register. This can be done at www.gov.uk/electoral-register

Avoid multiple credit searches - Applying for multiple credit accounts can have a negative impact on your rating, so it's important to be cautious when doing this. Price comparison websites are especially known for running many searches on an individual's credit score.

Remove financial association links - If you share a financial link with an ex-partner or family member, this may negatively impact your credit score. Unfortunately, if the account is still active then it cannot be removed; however, if it's no longer active you can request to have it taken off by contacting credit reference agencies.

Credit after bankruptcy/IVA - After you have been discharged or fully settled it is important to start building your credit again. You can do this by applying for a credit builder credit report and ensuring this is paid on time or ideally in full. It is important to start getting some good repayment markers on your credit file.

These are just a few tips on how to improve bad credit. With patience and dedication, you can take control of your finances and start rebuilding your credit score. Taking these steps will prevent you from getting into further financial difficulties.

Speak to a Mortgage Adviser

At LTC Mortgages we will request a credit report from you, we use Check my File as this shows all credit from the main three major credit bureaus which are Experian, TransUnion and Equifax, by using the main credit reference agencies this gives us a more accurate insight into your credit history, we don’t tend to look at your credit score as its what’s on the report that matters. To gain access to your credit profile, use the following link to Checkmyfile.

We are based in Liverpool, West Derby, if you would like to contact us to discuss your options then pop into our office or you can call us on 01516620188 or email [email protected].