Taking On Credit

Assuming you have taken the important first step of checking your credit file and corrected any errors you have found, taking on credit to rebuild your credit standing is the next step. Your eventual aim should be to improve your credit score.

Taking on credit is something that cannot be rushed. And there is certainly no short cut. One thing you must not do is to take on more credit than you can reasonably afford to pay back. You do not want to get into the same financial mess that ruined your credit record last time. And if you are now seriously in debt do not apply for more credit cards, but seek advice on how to deal with your existing debts.

Taking on Credit Means Having a Bank Account
If you have previously been made bankrupt or been in an Individual Voluntary Arrangement (IVA) then it might be you don’t have a bank account. Opening a bank account is important, as it opens the door to other financial services, and starts you off again enabling you to build up a good record of credit and repayments.

Not all banks will want to know, but you should find a few who are willing to open an account for you, even if it means no overdraft facilities for a period of time. The Co-op bank has a good reputation for allowing even those in a current IVA to open an account with them. The idea is that over time you will prove to be trustworthy, have money going into your account, and money going out. And it shouldn’t be too long before you can take advantage of their other facilities which could even mean a credit card or other form of loan.

Taking on Credit in Small Steps
The fact is that from time to time we all need a certain amount of credit. If at some time in the future you decide you want to buy a house with a mortgage now is the time to start building your credit up. If you are a member of a credit union you might be able to get a loan from them. Look for various ways of taking on credit, without overdoing it of course. There may be a way to not only reduce your outgoings, but also to take on manageable credit by remortgaging your property, thus killing two birds with one stone.

Credit Scores
As already mentioned, your concern should be to build up a good credit score. Credit scores don’t change overnight, because they are based on your history of borrowing and repaying.  Lenders rely on credit scores to assess the likelihood of you repaying what you are loaned.  Over time you can do a lot to strengthen your credit score, including making all your payments on time, contacting your lender if you do fall behind on payments so you can agree on a repayment schedule, keep spending under control and do not take on too much debt, close accounts you aren’t using, and one we’ll discuss further -  open new accounts responsibly and ensure they are paid off on time to show lenders you are capable of managing credit.

Remember, a good credit score, in time, will sometimes help determine the rate of interest you will pay on certain loans and credit cards.

The five main factors to determine your credit score are:

* Payment History
* Amount owed
* Length of credit history
* New credit
* Types of credit in use

Experian use a credit score which goes from 0-999.

Very poor 0-560 Lenders consider as Very High Risk

Poor 561 – 720 Lenders consider as High Risk

Fair 721-880 Lenders consider as Moderate

Good 881 -960 Lenders consider as Low Risk

Excellent 961-999 Lenders consider as Very Low Risk

Clearly then the higher up the scale you go the better it is, and you improve your chances of getting credit, and getting it at a lower interest rate.

For example, you might decide to apply for a credit card, and there are two good reasons for doing so.

a) To sign another credit agreement, the details of which will appear on your credit file.

b) To use the card to borrow every month and then repay on time every month, which is all good when it shows up on your credit file.

Vanquis
There are several companies who will provide credit cards to those who have a poor credit record. One is called the Vanquis Credit Card.

To qualify you must be able to tick all the boxes:

* You haven’t applied for a Vanquis card in the last 6 months.
* You are able to verify your address (e.g. bank statements, utility bills).
* You are not in the midst of declaring bankruptcy.
* You are registered on the electoral role.
* You are 18 or over.

If you fulfill the above then you stand a good chance of getting one of their cards. But, be warned! The provider is taking on greater risks, and that comes at a price. You can find that interest rates are often over 30% APR, sometimes much higher, so make sure you leave no outstanding balance at the end of each month.

Capital One Credit Cards
Another card for those wishing to restore their credit is the Capital One card. Again though you should bear in mind the APR for outstanding balances is currently more than 30%. But, as your aim is to build up a good credit record you will want to pay off your balance every month anyway.

You are more likely to be accepted for one of Capital One’s credit cards if-

* You’re over 18
* You have some history of managing your credit even if you have had CCJs or defaults in the past
* You are on the electoral roll

But not if:

* You’ve never had credit in the UK before
* You have been declared bankrupt in the last 12 months

Taking on Credit Through Loans
There are some loan companies who will also offer loans when other financial institutions won’t. These companies aim at people who are suffering with defaults, CCJs or arrears. Whatever your circumstances and even if you have a bad credit history, they can help you in taking on credit. Some will offer loans to both tenants and homeowners. Again though, expect to pay way over the odds in interest rates for these loans, having a poor credit history can prove expensive.

Having said that, if it means you can start to build up your credit and show a good record it means in time hopefully you will be able to get credit at more normal, lower interest rates. The key thing is to go slowly, do not apply for lots of types of credit all at once. If you get rejected and keep on trying remember that each time a company runs a credit check a note is made against your credit file. This makes you look desperate, and you are then even less likely to get past the application stage. If you are refused credit more than a couple of times leave it at least 6 months before attempting to get credit again, preferably longer.

Remember, a good credit score, in time,  will sometimes help determine the rate of interest you will pay on certain loans and credit cards.

Don’t go overboard and have too many lines of credit. If you have a mortgage, and car loan, which are often the two biggest amounts of credit you will have, then keep the rest of the loans below double figures ideally. If you can consolidate several loans into one larger loan this could work in your favour.

Taking on credit is a serious matter, but if done right it can mean big savings over time.