A reader asked:
My credit rating is very low. I defaulted on three debts in the first half of 2013 after I was made redundant the previous year. They have defautl dates in late 2013 and early 2014.
Since 2015 I have been paying them off slowly. One was paid in full last year and another just repaid this month, but my score hasn’t changed. One more is being paid £50 each month but that won’t be gone until end next year.
I have one credit card which I got two years ago as that was to try and improve my score. The balance is low and I have no issues with it. I now have a real fear of being in debt as I have discovered six years is a long time. Is there anything I can do to improve my credit rating any faster?
Repairing your credit record takes time
This can seem like a very long slow process but you are doing all the right things!
As the defaults get older, they start to have less effect on your credit score. And repaying the debts prevents any problems with CCJs, which would spoil your credit record for another six years.
By having a credit card you are repaying on time, a good repayment marker is added each month. At the moment these good markers don’t seem to help you much because of the defaults. But when the defaults have gone, all that is left will be the three years of good debt management, giving a very good credit score.
From what you have said, I expect the next 18 months will see your credit rating change as follows:
- a small improvement in your credit score as your good credit marks from the new card continue. It won’t be a big change because of the three defaults still showing.
- an improvement when the first default drops off your file in 2019, six years after the default date;
- another one when the next default goes;
- a big improvement when the last default goes, taking your credit record up to very good.
At the moment it probably seems like getting your credit rating up is the most important thing, but that last debt does need to be repaid. Even after it has gone from your credit history the debt still legally exists and you should carry on repaying it.
Can this be made faster?
There are isn’t much that can speed this up. Repaying the final debt will not change your creit score – but it may make other lenders more likely to give you credit.
If you can get your new credit card balance down to zero, repaying it in full each month, that gives an extra boost to your credit score, see How much will my credit score change if? Also, it may not feel like a problem, but you are still paying a high rate of interest on it, so by clearing the balance you stop paying any interest and you may be able to pay more to the remaining default.
Getting another credit card or a loan isn’t going to help, it will just be expensive. And new credit always makes your credit rating worse for the first few months!
Look out for these problems
It sounds as though you have looked at your credit record in detail and are being very careful with your finances. I’m not expecting that you will have any of the following problems, but it’s worth being sure!
- make sure you are on the electoral roll. Lenders use the electoral roll to help confirm your identity when you apply for credit. And it adds about 50 points to your rating;
- check you don’t have any financial association with an ex-partner showing which could be causing you problems;
- make sure all your bills are paid on time. It would be a pity to get to middle 2020 and see the last of your defaults disappear only to find your credit score still isn’t great because of a late payment for a water bill in 2018!
Staying out of debt
It’s hard to get through life without borrowing at some point. If you can save up a good “rainy day” fund, that is your best protection. If you can only start with £20 a month, that is a good beginning. Then when that final debt goes, you could increase your monthly saving to £50.
A good place to save this is in your local credit union. Credit union members can also borrow at reasonable interest rates – a much cheaper way to replace a washing machine than putting it on your credit card.
Want to get a mortgage?
I’ve written a separate article on this, because mortgage lenders have some specific requirements you need to know about: How fast can I improve my credit score to get a mortgage?