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"Please don't ask for credit, as a smack in the mouth often offends!" sign seen in pubs and shops Surveys suggest that around one in six adults (roughly eight million people) struggle to obtain high-street credit, because they are routinely turned down by mainstream lenders. In an ideal world (for borrowers, at least), we'd all have good credit ratings, thanks to having lived at the same address for many years; having a high, regular income from a long-lasting job; and being over, say, thirty with no kids and no adverse credit history. Fat chance! In reality, this world is far from perfect, and model customers are few and far between. Hence, getting credit can be a hit-and-miss affair. In real life, people move house, lose their jobs or get divorced, and times are sometimes tough for the best of us. What's more, some people are never given a break by high-street lenders, particularly those on low incomes or benefits, lone parents with dependent children, or tenants in social housing. It's one of life's cruel ironies that the people who need cheap credit most are those least likely to get it! Sadly, many of these people -- especially women -- end up at the mercy of catalogue companies, local money-lenders, home-collection lenders and loan sharks. Although there are no hard and fast rules for improving your credit rating, you can take steps to make yourself more attractive to lenders. Here are a few ideas: 1. Learn to budget No lender (apart from a parent!) hands over money knowing that it won't be paid back. Lenders are looking for people who will borrow a decent sum and then repay it all without any fuss. Being a good borrower requires a degree of financial discipline, so it pays to learn to budget, and to put a little aside each month. Furthermore, by sensibly managing your monthly income and outgoings, you may put yourself in a position where you don't have to borrow anything at all! 2. Pay your priority bills on time Planning ahead to meet your bills is all part of good budgeting, but certain bills are more important than others. Rob Parsons, author of The Money Secret, suggests that you pay THEM FIRST: Tax (council) (you can be imprisoned for not paying your council tax) Hire purchase (non-payment could lead to your car or other goods being seized) Electricity and gas (to avoid being cut off) Maintenance and child support Fines (to avoid going to prison) Income Tax Rent or mortgage (to avoid losing your home) Second mortgage Television Licence (this article lists a dozen ways to cover your TV Licence) I find it terribly difficult to pay my bills on time without prompting, so I pay all of my regular bills by standing order or Direct Debit. This keeps me on the straight and narrow, plus I avoid being fined for late payment by, say, credit-card companies! 3. Avoid slipping into the red Before you get hold of a credit card, personal loan or mortgage, you must to learn to manage your current account properly. If you routinely go overdrawn without permission, not only will you pay a fortune in fines, but this unauthorised borrowing may be recorded in your credit file, blotting your copybook. Getting into the habit of keeping in the black is a good move! 4. Join a credit union Rather than borrowing from banks, why not borrow -- and save -- within your local community by joining a credit union? These mutual (not-for-profit) societies are financial co-operatives which take deposits and grant loans among people with a common bond, such as those who live or work in a particular area, work for a particular employer, or have the same occupation. You'd be wrong to assume that credit unions are an outdated socialist relic, because they are, in fact, a powerful force for financial good. Indeed, by September 2003, members of the Association of British Credit Unions Ltd owned deposits of £293m and had outstanding loans totalling £240m. About two in three adults are eligible to join one of almost six hundred credit unions spread right across the UK; use this search to track down your local credit unions. Note that credit unions in Great Britain are regulated by the Financial Services Authority and protected by the Financial Services Compensation Scheme, just as banks and building societies are. 5. Get a credit card for beginners Thanks to rising bad debts, several leading lenders have tightened their credit-scoring policies, which means that they reject more applications for credit these days. Thus, if you don't have any previous credit history, it's now even tougher for you to borrow. Still, you could try applying for a credit card which has a low credit limit and it is specifically aimed at "beginner borrowers" and those with less-than-squeaky-clean credit histories. These include the Barclaycard Initial MasterCard/Visa (27.9% APR) and the Capital One Classic Visa (29.9% APR). If you are accepted for one of the cards, please do these two things for me: first, never spend more than you can comfortably afford to repay, because these interest rates are sky high. Second, set up a Direct Debit to pay off as much as you can each month -- preferably your entire balance, so that you avoid paying even a penny in interest. 6. Seven more terrific tips Finally, read this article, which provides seven more ideas to boost your credit rating. Here's to becoming a better borrower! More: Click here for a free 30-day trial of CreditExpert and to view a free copy of your credit report.
