How to Repair your Credit Report and Improve your Score

Every credit application requires a good credit score and here is how to repair your credit report and improve your credit score in the process. When I was in debt as a University student, I did not realise that ignoring the problem will have future consequences. I did not know that a dent on your credit report lasts a whole 6 years before it is taken off your credit report and can continue to badly impact your credit score meaning you will continue to be classed as a high risk and should not be lent any more and if they do it should be high interest credit only.

Recently I shared a post on things you need to do before applying for a mortgage and repairing your credit report and improving your score is one of them. When I was at university ignoring the calls from the creditors, I did not know that every single month I missed a payment or was late making a repayment, they were providing this information to credit agencies. Later on when I tried to apply for a credit card I was denied or offered the highest interest rates ever (think 46% APR). It took me getting a handle on my finances and learning the damage I was imparting on my future to realise I needed to change.

Disclaimer: I am not a financial advisor, just sharing what I know and from my personal experiences.

How to Repair your Credit Report and Improve your Score

So, what is a credit report? Well, think of a credit report as your financial bill of health covering any issues you had in the past and currently have whilst a credit score is a number assigned by credit agencies as to which risk category you fall under. What is funny is that each credit agency has its own categorisation system so you might have score of 780 out of 100 (fair) from Experian and 430 out of 700 (good). This is why it is so important to repair your credit report and improve your score before applying for any future credit.

When I made a decision that I wanted to buy a house 6 years ago now, I knew that it would take at least that long to bring my finances in order. I had already started to pay off debt and creating a good repertoire with my creditors. This is something I knew would help me in the future when I was ready to apply for a mortgage or other forms of credit including hire purchase for a car or a credit card. One thing to remember is you don’t need professional help to improve your credit score and certainly don’t pay anyone for it.

So, how did I raise my credit score from very poor (high risk) to excellent (they love me, for now) without paying someone other than my creditors. In this post, I am sharing a few tips that I implored that might be helpful to those looking to repair their credit reports and improve the scores in the process.

FIX THE MISTAKES ON THE REPORT

Your credit report and score is based off the information they have about you from lenders and whatever is publicly available. It is therefore important to ensure first, you check what is held about you on the credit report and secondly make sure to either update yourself or ask the credit agencies to update the information. If the information on your report is wrong, it means you score is wrong because it could be in your favour or against you due to the wrong information.

REDUCE YOUR CREDIT UTILISATION TO LESS THAN 30%

Your credit utilisation is one of the many things lenders look at whether they should lend you money or not. If you use more than 50% then you have a ‘higher’ appetite for debt and if lower then it doesn’t suggest you have financial issues and need more debt to pay off other debt. A lender will look at your credit utilisation and think – we can lend money to this person because they are good with managing their money etc. Although please note this is not the only thing lenders look at.

REDUCE CREDIT APPLICATIONS

One thing lenders pay attention to a lot if how often you apply for credit, its similar to credit utilisations. If you have applied for credit a lot in the last 3 months, lenders will consider you a high risk and maybe best to wait before they can lend you money. This is why it is so important to (1) reduce the number of credit applications, (2) use eligibility trackers – these are soft searches that a credit card for example might run to give you a decision in minutes whether they can give you a credit card or not. Soft searches get removed after 1 year and often don’t impact your credit score.

BUILD A CREDIT HISTORY

When I was 18 someone told me that in order to build good credit, I needed to apply for a credit card (they forget to tell I needed to maintain good repayment records). The reason for saying get a credit card its because lenders want to (1st) confirm you can make repayments and (2) are who you say. Applying for a credit card is not the only way to prove that I am me, just get registered on the electoral roll and also get a bill in your name. Even your phone contract when being paid off on time can tell a potential lender you have a good repayment history.

CHECK WHO IS LINKED TO YOU FINANCIALLY

Until recently, I did not know that having someone linked to you can affect your credit score, so if you spouse has a bad credit score – yours will be impacted too. If they are deemed high risk and should not be lent any more credit, you could potentially be denied credit because of that too. I know of people who have been denied credit because their spouses had the worst credit scores ever and because they are linked this affected them too.

One thing I want to make clear is your credit score will not improve today and there is no defined period when it should start changing. Credit agencies update their files monthly but that doesn’t mean lenders do the same too so this means there might be a delay in when your actual score is updated because the lender has to provide that information to the credit agencies for it to reflect accurately. But, even with that being said, its important you continue to make payment’s on time, don’t spend more than 50% of your credit, don’t apply for credit too frequently and above all else be patient and make sure the information on your report is accurate.

I hope the tips in this post will help you to repair your credit report and improve your credit score in the process.