Written by I Want to Repair My Credit
Before letting you know how to go about undertaking the process of credit repair you need to know a little bit about your credit status is evaluated.
Lending and other financial institutions in the UK have all agreed to share details of their customers credit arrangements with each other. They do this through a credit reference agency who maintain a file on each individuals credit activity, called unsurprisingly, a “credit report” or “credit file”.
This means that everytime you, as an individual, take out a loan or a credit card or a mortgage your credit file is updated. In fact, your credit file is updated on a monthly basis by these lenders as they record payment activity on the various loans or credit cards you may have taken out.
The reason for setting up this information sharing arrangement is that it allows the lender to check, when you apply for credit, that you have properly repaid other lenders in the recent past or is are properly paying current credit commitments.
As you might expect, many people have experienced problems at one time or another in repaying their individual credit items. They may have had to default on a loan, had a County Court Judgment issued against them or just been late on a few credit card payments. All these events will be recorded on their credit file. The result of this is that when they come to apply for new credit, such as a personal loan, a mortgage, a new credit card, car finance or even a simple bank account, they may end up being turned away.
To put it into everyday terms, let’s say you lent a friend some money and they promised to pay you back by the end of the month. If they then didn’t pay you back for a while and you had to keep chasing them to recover the money you would probably be pretty reluctant to lend to them a second time. If on the other hand they paid you back promptly, when they said they would or even early, you would probably be much happier to lend to them again should they ask. You would have made an assessment of their ability to pay you back by your knowledge of how good they had been at paying you back in the past. This is what the financial institutions are attempting to do with the information on your credit file.
So what is actually recorded on your credit report? Well, your credit report includes information from two main sources:
1. The Public Record, meaning Electoral Roll information, County Court Judgements, bankruptcy or formal individual voluntary arrangements (“IVA’s”).
a. Electoral Roll information includes your name, your local authority, the address your local authority believes you live at, the names of any others believed by the local authority to be staying at your address and the date they were first recorded.
b. County Court Judgments are held on your credit report for a period of six years from the date of the judgement.
c. Bankruptcy matters and IVA’s are also held on the credit report for a period of six years from their start date.
2. Lenders and financial institutions in the UK. In brief this includes
a. This includes information about any items of credit you have taken out in the last six years.
b. Each credit item will have include a payment history showing whether or not you have made payments on time.
Most people are completely unaware of the existence of credit information, credit files and credit reference agencies, yet as you can see from above they are tremendously important in today’s recessionary climate. Almost every lending institution will automatically run a credit search on you, by contacting the major credit reference agencies, as the first step in processing a credit application you might have made.
What’s On My Credit File?
You can get a copy of your credit report or credit file as the credit reference agencies are required by law to send you a copy. They will charge you £2 however in order to cover their administrative costs. In order to get your copy you should contact one of the following credit reference agencies. It is probably easiest to do this via their website. Ignore any subscriptions offers they place in your way, or fancy free credit report offers. These are just marketing ploys to entice you into a subscription service. Their contact details are as follows:
Callcredit plc
Consumer Services Team
PO Box 491
Leeds
LS3 1WZ
Tel: 0870 060 1414
Experian
Consumer Help Service
PO Box 8000
Nottingham
NG1 5GX
Tel: 0870 241 6212
Equifax plc
Credit Advice Centre
PO Box 1140
Bradford
BD1 5US
Tel: 08705 143700
Credit Repair – The First Steps?
First things first, before we get into the credit repair process. As explained above, the information held on the credit report is a reflection of your past payment history. You effectively earn a clean credit report by making payments on all your outstanding credit arrangements in full and on time for a sustained period.
This article assumes you have not got a clean credit and that you wish to start the credit repair process. Hopefully you will see that you can take simple practical steps to undertake your credit repair.
The first thing that needs to be said is not to worry, if you have had payment problems or experienced other adverse credit events in the past do not be dismayed, take it step by step, start today. Each step is not particularly complicated and if by making the effort you will achieve a signficant benefit.
The steps documented below will not help you if you have a County Court Judgment (“CCJ”) recorded on your credit file. You may well have seen advertisments from credit repair companies about how they are able to remove County Court Judgments from your credit report. Technically this is not true. A properly recorded CCJ will only be removed if you pay the outstanding amount within 28 days of the date of the judgment. If you miss this payment deadline then even if you settle in full a record will remain on your credit report and no credit repair company on the planet will be able to remove it. However, if you have not settled in full there may be a process you can follow to have the judgment removed on the basis that it was not properly recorded. This is known as a legal “technicality”. It is exploiting this technicality that the credit repair companies are offering. For a fee, of course. The good news is that you can undertake the process the credit repair companies follow yourself. However, how you should deal with County Court Judgments will be the subject of a subsequent article.
The first step may surprise you. Make sure you are on the Electoral Roll and that your details are correct. Remember, your objective is to repair your credit rating. You wish to show the financial institutions that you are a stable and reliable person. Appearing on the Electoral Roll is evidence that you have a residential address, and therefore are unlikely to unexpectedly disappear, and that you are a responsible person prepared to vote in elections on matters affecting the welfare of the country in which you live. You can find out details of the Electoral Roll, or how to register on it, by contacting your local authority.
Next apply to each of the credit reference agencies for a copy of your credit report, or credit file. The reason for this should be obvious. If there are any errors or mistakes on one report then it is quite likely that they will be on the other reports. Repairing one credit report may well leave your credit rating impaired on the remaining two.
Once you have them, read them all carefully for any errors:
o Have they spelt your name correctly?
o Does it show your correct address?
o Are all the loans shown as outstanding correct?
o Are the payment histories accurate?
Don’t assume the credit reference agency will have got your details right. As you may imagine they deal with many hundreds of millions of transactions every month, if they only got a very small proportion of these wrong it might still represent tens of thousands of errors each month.
If you do find errors then you should contact the credit reference agency and request the error be corrected. The credit reference agency is required by law to investigate the matter and if the error is confirmed to alter the relevant material. In fact credit reference agencies have to tell you within 28 days of hearing from you if they have taken action to correct your file and, if not, why they have not done so.
The final step is to address the problem of a poor payment record on your credit report. The best way to think of this is that you need to balance the poor payment history on previous credit arrangements with a good credit history on current or new credit arrangements.
Probably the easiest way to do this is to start using a credit card for everyday expenditure and ensure that you repay the full amount at the end of each month. Try not to think of the credit card at this point as borrowing more money. Don’t spend more in a month than you can afford to pay off in full at the end of the month. Remember you are trying to undertake a credit repair process, to restore some balance to the adverse payment record on your credit report.
In practice this means that if you usually pay cash for everyday items, try paying with the credit card instead and saving the cash up to pay off the card when the bill arrives. When the bill arrives, pay it straight away. If you usually use a debit card, again use a credit card instead.
If possible, set up a direct debit with your bank to pay off the full credit card balance automatically each month. This way you are less likely to forget, or make late payments.
If you don’t have a credit card then there are some companies that specialise in issuing cards to people with poor or advers credit histories. Yes, the interest rates they charge is very high, as much as 40%, but remember if you do pay off the full amount each month as suggested in this article you will never be charged any interest, and over time you will have successfully undertaken the credit repair process and freed yourself up from the constraints of a poor credit rating.
Credit Repair – Summary
Your credit report or credit file is a comprehensive record of your borrowing and repayment record for the preceding six years. If you are experiencing difficulty in arranging new credit then it is highly probable that the reason is down to errors on your credit report, or a poor payment history. You can repair both of these issues, firstly by pointing out the errors to the credit reference agencies and secondly by creating a new uptodate pattern of credit and on-time repayment which balances out the poor payment history in the past.
Above all, it is important that you act soon. You never know when you might need to borrow money in the future at short notice. If you do not act now and start the process of credit repair you may be unable to borrow in the future when you most need to.
Good luck.
