DIY Credit Repair
In an effort to find a quick fix to bad credit, a lot of people turn to credit repair companies, often lured by unrealistic promises such as 'erasing your bad debts' or 'removing CCJ's from your credit report'.
It’s best to avoid such hyperbole because there is no quick way out of bad credit; it takes time and significant debt reduction to repair your credit. Much of what credit repair services charge you for, you could do for yourself and even in extreme cases there are free debt advice services on which you can rely.
Below is how you can tackle the problem yourself, save yourself the money and come out a more learned credit consumer:
Step 1: Get a copy of your credit report
A credit report is an assessment of you as a credit consumer based on your past history of debt repayment. They’re compiled by Credit Reference Agencies and can be accessed by you and third parties that you authorise, e.g. when you apply for a loan, or those that have a legitimate reason and have informed you.
In the UK there are 3 main credit reference agencies, they’re; Experian, CallCredit and Equifax. They normally charge a fee for access to your credit report, however you’re entitled to a statutory report provided you pay a £2 fee, to get your statutory report follow the corresponding link below:
It’s easy to assume that all 3 agencies would have the exact same information since it concerns the same person, but that’s not always the case; each agency collects information independently and a lender can choose to work with one agency and not the others. Therefore, it’s worth getting a copy of your credit report from all 3 to make sure you don’t miss anything.
Source: Information Commissioner’s Office
Step 2: Check for errors
It is possible that reporting errors contributed to your having a bad credit rating; credit reference agencies rely on data they receive from sources such as banks, credit card issuers, mobile phone companies and other types of creditors, if there is a mistake at the source e.g. a lender got your name mixed up with someone else’s, the credit reference agency has no way of verifying it. They rely on either the source correcting their mistake or you disputing erroneous items on your credit report.
Review your report carefully, and if there are mistakes, contact the credit reference agency and notify them of the mistake. You can also contact the company that made the mistake and ask them to correct it, if they’re unwilling to comply and it’s clearly a mistake, you can report them to the Information Commissioner.
Step 3: Budget and prioritise
A key part to what builds a credit score is financial responsibility, missing payments or defaulting hurts your credit score. Make a plan for paying down your debts, prioritise the debts that cost you the most in interest charges but also make sure you at least make the minimum repayments on all debts.
If your debt is on several credit cards, consider balance transfer; some card issuers will offer you a reduced interest rate on balance transfers even if you’re an existing customer. So you might be able to buy some time by moving your debt to a lower interest card; having some of your debt on a lower interest account for even a few months means you can focus on paying down your more expensive debt.
If your debts are too big to manage on your income, seek advice; across the UK there are local Citizens Advice Bureau offices, from where you can get free advice. Other debt charities such as StepChange and National Debtline have a lot on information on their websites and telephone numbers where you can call and confidentially speak to someone about your situation.
Step 4: Continued usage
Some people will try to avoid falling back into debt by cancelling all their credit cards after paying off the balance. This might be the right approach if you believe you won’t be able to control your spending, but it can also lead to a stagnation of your credit history unless you have other forms of debt to pay off.
If you’re not paying off other forms of debt, the best thing to do is to keep at least one credit card which you should use and pay off at least occasionally; this will increase positive entries in your credit history thus giving your credit rating a boost. If you feel that it will be difficult for you to control your spending, you can request to have your credit limit lowered to an amount you’re comfortable with, on top of that, only spend with the credit card when you have the money and can pay off the balance soon after using the card.
If you don’t have a credit card and cannot qualify for one, you can apply for a credit builder prepaid card; these services are setup specifically to help people boost or establish a credit rating, they lend you a small amount of money(£60 for example) which you pay back over 12 months. If you successfully repay the small loan, it will be reported to the credit reference agencies, which helps boost your credit rating.
Another thing you can do is get a mobile phone contract; when you get a new phone on contract (not pay-as-you-go), the mobile phone company is effectively giving you a loan, the outcome of this loan (paid or failed to pay) will be reported to reference agencies, so just paying your phone bill every month can boost your credit.
A good credit rating is important, it’s not only used for borrowing, it is increasingly being used by landlords (or letting agents) to assess potential tenants, some employers may also ask to look at it. So even if you don’t plan on borrowing in the near future, it is still advantageous to have good credit.
The very credit services that can ruin your credit are also the best tools for repairing it, use them wisely and you will turn the corner. And if you can’t do it on your own, don’t be afraid to ask for help, services like the Citizens Advice Bureau and StepChange have helped many people over the years, whatever your situation is, they’ve probably helped someone like you before.