How to rebound from a poor credit score

By UK CreditCards.com

A healthy credit score is vital for those seeking a new credit card or applying for a mortgage, but many Britons have been turned down for credit because of a poor rating. All it takes is a few missed card repayments for consumers to build up a poor credit history and be rejected by mainstream lenders.

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Here, CreditCards.com takes a look at recent research by Equifax and lists some of the credit report firm's top tips for rebounding from a poor credit score.

Credit rating often to blame for failed applications
A significant proportion of people who are turned down for credit cards or loans fail because of their poor credit rating, experts say.

A survey by Equifax, conducted among 2,380 of its members earlier this year, found that over a third of respondents had been turned down for a new credit card. Of these, 27% thought the decision was due to a poor credit rating.

"Lenders make checks with credit reference agencies to see whether an applicant has kept up-to-date on repaying their credit," explained Neil Munroe, external affairs director at Equifax. "They also use a 'credit scoring' system to decide whether or not to lend to consumers. So it's vital consumers keep up-to-date with repayments and ensure their rating is in top condition."

What to do with a poor rating?
Equifax advises consumers to review their credit rating on a regular basis so that they have a better chance of being approved for new credit.

But what should people do if their credit history is less than spotless? Mr Munroe insists that "all is not lost for consumers who score poorly".

"Having several credit cards with high limits and missing repayments can be cause for concern for lenders," said Mr Munroe. "Such discrepancies can result in an individual's score deteriorating and them therefore being unable to obtain new credit." People should therefore reduce unnecessarily high credit limits and cancel any cards they no longer need.

Conversely, having too few credit cards or loans can also affect a person's credit score. Lenders want proof that an applicant is capable of managing repayments, so consumers should consider having at least one credit card, using it regularly and paying it off in full each month.

Britons should also ensure they are registered on their local electoral roll, as this is often used to combat identify fraud.

Any change in circumstances, such as redundancy or a recent divorce, that has affected their ability to make recent repayments should also be detailed on their credit file in the form of a Note of Correction. Lenders will then see this information and use it to inform their decision-making process.

Equifax also says that credit card holders should aim to keep their balance within 30 per cent of their credit limit so that lenders do not think they have excessive amounts of debt.

Repayments should always be made on time and setting up direct debits can help to prevent missed payments. Consumers who are able to pay off their credit cards or loans early should aim to do so, as this is likely to be seen in a positive light.

Finally, applicants who have recently been turned down for credit should check their credit rating to see if there are any obvious reasons. They should then put off submitting a new application for a period of time, as each attempt to obtain credit leaves a 'footprint' on their credit file. Lenders may take this as a sign that a person is desperate and has over-stretched themselves financially.

See related: 5 common credit score mistakes; What to do when your credit card application is declined

Published: 11 October 2011