Let’s start by cutting to the chase – repairing a bad credit score isn’t easy. As well as time and strict financial management, it also requires that you fully understand just what can impact your credit score, why and what you can do about it.
Consider this guide your credit debt help guide for fast credit score fixes.
A little explainer before we begin…
Depending on the credit reporting tool you use your score will be between 300 and 850. What counts as bad credit will differ from one to another (check the website of your chosen tool for a breakdown of the scoring groups).
As an example, this is ClearScore’s scoring groups…
Very Poor 0 – 279
Poor 280 – 379
Fair 380 – 419
Good 420 – 465
The top five things that are affecting your credit score
- Payment history
Your history of payments is THE most important factor on your credit report (it accounts for around 35% of your overall score).
Unfortunately (and rather depressingly) even making a single repayment late can and will reduce your credit score.
What you can do about it: Make your repayments on time! If you find that you’re regularly short of cash to make your repayments, you need to seek debt advice as soon as possible. You could also start exploring possible debt solutions if your situation isn’t a temporary one and you don’t foresee your circumstances improving anytime soon.
- How much of your credit you’re using – Known as credit utilisation
Your credit utilization ratio is a figure that demonstrates how much of your credit you’re currently using. Let’s say you have one credit card and an overdraft, both of which have limits of £5,000. Your total available credit is £10,000 and you owe £2,000 on your overdraft. In this case you would have a credit utilisation of 20%.
Ideally your credit utilisation should be below 30%, anything above this is considered to demonstrate an increasingly compromised financial position.
Your credit utilisation accounts for 30% of your credit score.
What you can do about it: Start repaying your debts and try to avoid borrowing again. You may want to cut up your credit cards if you know that you’ll be tempted to use them again.
- Your credit mix – The variety of different credit products you use
Those who have a rich mix of credit products generally tend to have higher credit scores. Lenders weigh up your use of different products to understand how you use credit and what you use it for.
You should also bear in mind that certain forms of credit can indicate signs of financial trouble, such as using logbook loans or payday loans. You should avoid these types of credit products if possible, not least because they also come with sky-high interest rates and fees.
What you can do about it: Assess the credit products that you currently use. Do you have multiple credit cards? Are your overdrafts all maxed out every month?
- Hard inquiries
There are two types of credit searches – hard enquiries and soft enquiries. Hard enquires leave a marker on your credit file which, if you hit a certain number within a relatively short period of time, will damage your prospects of being approved for credit.
By comparison, soft searches won’t harm your credit record. These are usually undertaken to check basic details for money-laundering and anti-fraud purposes.
What you can do about it: Always use a pre-approval tool before moving ahead and applying for credit. These tools, which are offered by an increasing number of lenders, perform a soft search in order to provide you with some idea as to whether you’ll be accepted for the product.
- Defaults and accounts sent to collections
After three missed payments most creditors will register your account as being in default. They will then issue a formal demand, requesting that you bring the account up to date; at this point, as well as late payments being registered on your credit file, you’ll also receive a default.
What you can do about it: As soon as you receive a default notice it’s critical that you address it as soon as possible, even if this means contacting your creditor to explain that you’re unable to pay it right now. If you have a limited amount of money that could contribute towards the debt you should send a proposal to your creditor in writing as to how much you can afford to pay and how often.
- CCJs and insolvency solutions
County Court Judgements are issued where a creditor has run out of ground with their collection processes (e.g. the account is in default and they haven’t been able to reach you or come to an agreement for repayment).
With no prospect of settling a debt, creditors can take you to County Court, although this usually takes at least six months before you’ll need to arrive at the court doors.
What you can do about it: As soon as you receive notification of an impending court case it’s important you seek expert advice. This needn’t mean instructing a solicitor (which in many cases can result in significant legal fees). Organisations such as Step Change and Citizens Advice both provide free, impartial advice.