COMMENT
Seven Ways To Perk Up Your Credit Rating

By Cliff D'Arcy
January 6, 2006

Before granting you a credit card, personal loan, mortgage and so on, lenders will look into your financial history to make sure that you're up to scratch.

So, given that most of us use credit as an important part of our everyday lives (for example, to pay for cars, home improvements, holidays, weddings and so on), it's important that you keep an eye on your personal financial history. Quite simply, by taking control of your credit history, you can increase your chances of being accepted for credit.

The two main credit reference agencies, Experian and Equifax, hold a wide range of information on your financial history, including details of your repayment history on credit cards, loans, mortgages, court judgments and so on. These agencies don't always hold the same details, so you should check them both.

Credit reference agencies also confirm whether your name is on the electoral roll at your present address. If it isn't, forget about borrowing, because of the risk of what's known as "empty house fraud" (use About My Vote to register). Also, they record previous searches of your credit report, for example, by lenders, utility companies and so on. Naturally, your credit report will evolve, as your circumstances and borrowing history change over time, so each report is simply a snapshot in time.

Organisations combine these data with information from your application form to produce a credit score -- a measure of how likely you are to repay your debt and make repayments on time. Each firm applies its own credit-scoring formula and threshold, but if your score is too low or you don't fit a lender's ideal customer profile, your application may be rejected. Alternatively, you may be offered a higher interest rate than the typical APR (annual percentage rate) advertised.

Hence, it pays to monitor your credit score -- and these seven tips will help you to keep it in tip-top condition:

1. Read your report

Perhaps the easiest way to check your credit report is to sign up for a free thirty-day trial of CreditExpert from the UK's largest credit reference agency, Fool partner Experian. This enables you to check your credit report online whenever you like, and any changes to your report will be notified to you by email or SMS text message.

2. Correct any mistakes

Organisations seem unable to cope with my surname, simply because it contains an apostrophe and two capital letters. Indeed, I've seen many bizarre variations of my name over the years, including Mr C D Arcy, Mr Darcey and even Mr Darsey. Yuk!

If you find anything significantly wrong on your credit record, ask the agency to investigate and amend its record accordingly. If Experian does change your report, it will inform any firms that have searched your report in the previous six months. Also, you can explain add a short note called a Notice of Correction to your report if you want to explain any previous credit problems to prospective lenders.

3. Watch out for spurious entries

Sadly, victims of identity fraud often take months to realise that some is impersonating them in order to borrow money fraudulently, by which time their credit report is already damaged. If you spot something unusual or mysterious on your credit record, contact the credit reference agency immediately, or the problem may come back to haunt you further down the line!

4. Manage your relationships

If you have a joint bank account, mortgage or credit card, you have a "financial association" with someone else, say, your spouse, for example. However, if this person has had credit problems in the past, these could be held against you. Hence, if you are no longer financially connected with this person, be sure to tell the credit reference agencies, so that you can be listed as financially independent, which means that only your personal financial data will be recorded against your name.

5. Don't go madly applying for credit

When you shop around for credit (you do shop around for credit, don't you?), don't go making formal applications for credit left, right and centre. Each application leaves a footprint on your credit record, and lots of footprints are an indicator of "credit crisis" or even fraud. Instead, ask a company for a quotation which stops short of a full credit search. If a firm searches your credit report more than once in order to process a single application, ask it to delete the extra searches. Remember, the fewer credit searches, the better!

6. Pay your bills by Direct Debit

Many people are wary of using Direct Debits; I've heard people ask, "Why should I let someone reach into my bank account to take my money?" The answer is that paying your credit-card, loan and mortgage repayments by direct debit means that you never have to worry about missing a repayment. What's more, a history of on-time payments clearly shows that you're in control of your finances -- especially if you pay off your plastic in full every month. Also, paying other bills by direct debit can mean savings of up around £200 a year.

7. Be honest on application forms

For example, let's say that you'd like to have the latest Best Buy platinum credit card, so you sneakily record a higher income on your application form in order to push it over the £25,000 threshold. Not only are you committing fraud ("attempting to obtain pecuniary advantage by deception"), but any falsehoods or inaccuracies will prevent you from getting credit in the future. So, tell the truth and shame the Devil!

Finally, steer clear of dodgy businesses which claim that they can "repair" any previous credit problems, enabling you to borrow freely again. This is a myth, so you'll end up paying an arm and a leg for a completely useless -- or even entirely bogus -- service!

Click here for a free 30-day trial of CreditExpert and to view a free copy of your credit report.