How can a person improve a bad credit rating?

Question

My brother has a lot of difficulty obtaining credit due to a lot of small debts he incurred while a student. How can he fix this? He is thinking of buying a house and is afraid that he won't be able to get a mortgage. Any ideas?

Answer 1

You've got plenty of good answers on here. The only thing I'd like to add is that he should get a better understanding of exactly WHAT goes into the credit score. The better he understands the system, the better job he can do at improving his score AND keep it in good standing. To know how they come up with the credit score, you can visit this page :

http://financialbasics.blogspot.com/2006/11/credit-reports-and-credit-reporting.html

Hope it helps

Answer 2

If he's on top of the debts then he'll have a better credit rating than if he never had the debts at all. However it will mean his income is reduced and so won't be able to borrow as much.

Has he been bankrupt or anything like that? If so then it'll be a few years before he can get any kind of sensible mortgage, otherwise to build his cradit rating back up he should pay for as much as he can by direct debit, then get a small credit card (one without a high limit) and when he would buy something with cash, put it on the card instead and then pay it off immediately. Do that kind of thing for a year and do it well and his credit rating should soar.

Answer 3

The first thing your brother needs to do is get hold of his credit report. There are two main credit reference agencies in the UK and I suggest your brother gets his file from both agencies as both will hold different information depending on which companies his debts are with.

Once he has this information he can contact his creditors to discuss/negociate repayments on the debts. If he has already paid these debts off his credit file will already have improved. If not he needs to negociate new payments and stick to them and every month that he makes his minimum payments his file will slowly improve.

He can also contact the citizens advice bureau if he wants some help negociating the repayments of these debts.

However, even with small debts in the past your brother may not have a problem obtaining a mortgage. Many companies now have special mortgage products for people with credit problems. They will not lend 100% of the purchase price if you have had previous credit problems so your brother would need to have at least a 10% deposit to put down on a property. However, if he doesn't have a deposit to put down he could try purchasing a new build property where developers often give between 5 and 15% deposits as incentives for purchasing the property.

Your brother will need to contact an independent mortgage broker to discuss his options as the lenders that lend to people who have been turned down from the high street lenders only deal with intermediaries. Feel free to contact me if you require the name of a good broker.

Answer 4

There's lots of things you can do to improve your credit rating. The most important is paying bills on time. However, what ever you do, DO NOT PAY A DEBT COLLECTOR FOR ANY OLD BAD DEBT! Doing so will restart the 7 year clock on your credit report and will result in having the tainted entries for a long period.

In any case, bad entries on your credit report fall off after 7 years. Time is the ultimate healer.

Answer 5

A few ways. Best way to at least assist with helping your credit along is getting an unsecured credit card. This is a card that will require you to pay into the account and perhaps pay an annual fee. Not the cheapest way. There is also no easier solution then paying off old debts if at all possible even in small increments.

Other ways are to remember to pay all utilities on time, and overpay if possible small increments. Things considered in credit decisions are

Delinquent accounts
Credit Inquiries (yes it costs points to see if your eligible for a card)
Revolving balance (how much you currently owe in outstanding credit balances)

Answer 6

You cannot destroy the past but you can build on the future. Pay off the required amounts stipulated by the credit card conditions and you will have no problems acquiring a new credit rating (It's OK we know it's actually you not your fictitious brother because denial is one of those bad-credit traits) Besides, it's all good news on finance borrowing with so much competition out there including global, online lenders.

Answer 7

I am going through the same thing. The only solution I found is to have each of the credit agencies to print off a report and then send each of the companies that he owes payment in full. Then he can start to rebuild his credit. It is a long process, but in the end it is well worth the wait!

Answer 8

1. be on the voters roll, it gives lots of + points
2. have a home phone in his name.
3. if he has a deposit, use it to clear all the small debts, then get a bigger mortgage, you can get upto 125% of house price these days.
4. make all payments to all loans and utilities on time.
5 get experian report, £2.50 from experian, and see what he has on file.
6. Anything showing as outstanding with missed payments...write a letter and explain how it occurred and why ot wont recur, or pay them off.

See a mortgage adviser....get a decision in principal to see how it looks to lenders.

Answer 9

the lesson to learn and some folk find it difficult is if you buy something then pay for it on the date stated on the statement. As the British gas will tell you this very Thursday morning if you dont pay your bill on time £5.00 is tacked onto the bill just as the bank and all other financial institutions do so if you cant afford something dont buy it

Answer 10

if he has any credit cards, always pay on time. get a credit report and see what he owes and try to clean it up.. if it's something that he can pay the old debtors off. then do it.. Get a letter from them that you've paid this balance and amount for your records. If he qualifies for a homeloan.. don't be late in paying your bills.