How to get a good credit rating

By Ed Towner 22.02.12

A good credit rating is an essential part of everyone's life. Find out how to get a great credit score.

A good credit rating is an essential part of modern day life from buying a home to taking out a credit card.  It will influence the rate you pay on loans and even whether you can get a mobile phone on contract or electricity in your home. Therefore you need to start thinking about how to keep it down.

The irony is that one of the best ways to build up your credit rating is to borrow and then pay it off. This shows that you are financially reliable and subsequently your credit score will start to rise. But you have to start somewhere and when you first start to indulge in the world of credit cards and loans you'll find out that you have no credit rating at all. Just when you thought starting out would be easy actually having no debt is damaging because if you've never been in debt then banks don't know if you will or can pay it off. No one has a right to credit – you have to earn it.

Electoral Roll

A starting place to get you on the credit map is to register on the electoral roll. This is essential as, if you're not on it, it's virtually impossible to get credit. Why? Well it reassures banks that you live at a permanent address and helps to confirm you are who you say you are.  Lenders can also check how long you've been there. It's all about stability; living somewhere for an extended period of time shows you're stable and settled.

Less is more

An easy way to warm up your credit rating is to avoid lots of credit card applications, as the more often your credit rating is checked, the lower your score will be. The reason is if you're constantly applying for credit then it shows you may be stretching yourself too far. Lenders worry about whether you can afford to repay them, naturally.

It's not unusual to be rejected by a credit card company especially if you're going for one of their 0% deals.  The key is to get over it and move on. The worst thing you can do is to continue to apply for more and more credit cards. Every time you apply it leaves a mark on your credit history and again, banks can read this as a sign of desperation.

  If you can't get a credit card, start small with a store card. Because store cards have smaller borrowing limits, they're easier to get. They are a good way for those starting out or for someone repairing their credit rating after a bad patch to prove they can handle debt. The rates are shocking so make sure you pay back your balance on time to avoid interest charges otherwise your quest for a good credit rating could have just taken a sharp U-turn.

Open a current account

Applying for a current account is another way to get you on the money map. Once they know you, you can start borrowing with your bank. An overdraft is the usual starting point for students. Trust builds if you show you can handle money well and pay down your overdraft. In fact, in the first instance your bank is often the best place to start when you're looking for a credit card or loan.

Keep YOUR money separate

Another way to ensure that you are in control of your credit rating is by disassociating yourself financially with anyone else who may share your address.  Otherwise credit rating agencies may link you financially. All you have to do is write to them. There are three main credit rating agencies – Equifax, Experian and Callcredit. Most of the time you can check your credit history for free by signing up to see your rating online - just make sure you cancel your account at the end of the free period or else you could get charged. Or you can see your credit history for £2 by post.

Checking your credit rating is especially important if you are in shared digs as if any of your house mates can't handle their money it will affect your credit score. If you live with your family then you should be fine but if you are in digs and share household bills then you may find you've become financially linked with others. You will definitely be linked financially if you have any loans or a mortgage with someone else.

Long-term process

Building up your credit rating is much like buying your first car. To start off with, you have to go for a small three-door with a tiny engine, nothing fancy - something that gets you from A to B. In this case, something like a store card, which you use and then pay off. It's definitely not fancy and not particularly economical, but it does a job. Once your credit rating increases you can start to look around for better rates.

Now you're earning a bit more, you can afford to ditch the three-door and start looking at a bigger engine with some added extras. In borrowing terms, this could be a credit card with a decent interest rate and maybe even a 0% introductory rate.

Think of it this way - the longer you drive safely and keep your no claims bonus, the cheaper your premiums are. The same applies to credit. Banks will see you as a safe pair of hands to entrust with credit if you consistently pay back what you owe.

And after all the tiny cars and rubbish rates you end up with the Ferrari of all credit cards offering you a 0% balance transfer and 0% purchases with generous rewards