Have you ever applied for a loan or credit card only to be refused, yet you haven’t known why? When you apply for any type of credit, the company checks your personal credit report, which tells them how you’ve managed your finances in the past, and your current credit situation. From the information on this report they can make an educated guess as to how risky it would be to lend you money, and how likely it is that you could pay it back.
So what’s contained on your report? Any credit you’ve had in the last 6 years or so will appear on this file, along with how many payments were on time, late or missed altogether. Defaults, CCJs, IVAs and bankruptcy are listed on here too. It’s not all bad; any loans you’ve paid off in full, or early, will be there for the creditors to see as well. Basically, it’s a comprehensive picture of how you manage the debts you have.
It doesn’t just show the level of debt you have though. Each time you apply for credit of any kind, the company who does the credit check will leave a ‘footprint’, showing other potential lenders just how many searches have been done on your report. This shows them how often you apply for credit. Too many searches can look bad for you, as it would look like you’re trying to obtain more credit than you can afford to pay back. So if you have lots of failed loan or credit card applications in your past they could well be going against you getting future credit.
Cleaning up your credit file isn’t a fast process, but it is possible with a little work and patience. The first thing to do is see exactly what the lenders see; get a copy of your report from each of the credit monitoring agencies (Experian, Equifax and CreditExpert) and look through each one thoroughly. Sometimes a debt which you have paid off may not have been logged as such, so if this is the case contact the company in question and ask them to amend this. You can also contact the agency and ask them to amend your report, especially if there are a number of discrepancies.
If all is correct, and your score is still low, then look at the outstanding debts you currently have. If you feel you can’t afford the current repayments, work out what you could afford to pay each month, then write to all your creditors and offer new payment plans. Fill out a ‘statement of means’, a list of your income and expenditure for each month, and send this to each creditor along with a revised offer of repayment. Most of the time they will be happy to help you if you’re honest with them from the start. Sending in the financial statement will show them what your current situation is, and how much you’re likely to be able to afford. The important thing here is that you take your monthly outgoings to a level you can comfortably manage, so that ‘on time’ payments show up on your report instead of missed ones.
As I said, cleaning up your report requires patience. It takes 6 years for an old entry to disappear from your report, so anything which is on there now will stay there until 6 years from the date of the last activity. During this time, try to avoid applying for any more credit, and get yearly credit reports so you can monitor your score. You should see it begin to rise provided you keep up with repayments and avoid taking on more debt.
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