How to improve your credit rating after a DMP

posted by in Living with debt

How to improve your credit rating after a DMP

How to improve your credit rating after a DMP

If you’re close to finishing a debt management plan (DMP) then there’s a good chance that you’ll have no interest in taking out more debt. And we wouldn’t blame you!

However, if you’re planning your financial future – say, applying for a mortgage, a good deal on your car insurance or even getting a good deal on a monthly mobile contract – it’s important to spend time working to improve your credit rating first.

We can show you how to make yours a bit better. However it’s important to say that none of these tips are magic cures. If you follow them it’ll mean you should be making small improvements to your credit rating over time, but you’ll probably have to wait a while before your credit history is in tip top shape.

With that in mind, here are our top tips to get your credit file on the road to recovery…

Check your credit report

A majority of people in the UK don’t look at their credit report. With your excellent budgeting skills and new-found financial acumen, resolve not to be one of these people! You need to look at your credit file to understand what a report lists, what your report says, and areas you’ll need to improve before ever considering taking out credit.

There are three credit reference agencies in the UK: Noddle, Experian and Equifax. Noddle lets you look at your report for free (tip 1: don’t click on the adverts for extra credit on that site), and a request to view your file via the other two costs £2 each time (tip 2: Experian and Equifax offer ‘free’ access for 30 days, but don’t sign up for this if there’s a chance you’ll forget to cancel otherwise they’ll charge you around £10 a month after the first month).

Electoral roll

If you don’t know your electoral roll from your sausage roll you could be missing out. Being registered to vote means that the people checking your credit rating can verify your details, and shows you’ve had some long-term stability.

So if you’ve never you’ve never registered to vote you should do something about it. There’s an easy-to-use online tool that can help you get on the electoral roll. Not only will it help you with your civic duty, you’ll also give your credit rating a little lift.

Tidy up mistakes

Your credit history should be a series of facts and figures about how you’ve managed your accounts over the last six years. If anything on your report isn’t right then you can get it corrected.

The easiest way to do this is to speak to the company that put the information onto your credit report. If they refuse to correct inaccurate information then you can ask the Information Commissioner’s Office to investigate and resolve your complaint.

Explain the complicated stuff

Because credit histories only contain facts and figures it can sometimes only reveal half a story. If you think there is an issue that needs a bit more explanation then you can add a ‘notice of correction’.

This means you can add up to 200 words that briefly explains anything you’d like clearing up and will be visible to people checking your credit history. Find out more from credit ratings agency Experian about adding a notice of correction.

Give it time

Credit reports hold information for a maximum of six years, so if you’ve just finished a DMP there’s likely to be a record that you’ve not been making the full payments on your debts. As time goes by this information will drift into the past and then drop off.

Avoid joint finances

While it won’t hurt your credit rating if you live with a partner with a bad credit rating, it can start to drag yours down if you have joint financial products, like mortgages and bank accounts where you’re both named on the account. If you’ve got joint accounts then it’ll be marked on your credit file that you’re financially linked and the other person’s credit rating could affect yours, or vice-versa.

Once you’re debt free, apply for small amounts of credit

One of the quirks of the credit rating system is that having and using credit can improve your rating. By spending a small amount on a credit card and paying it off every month you can build up a record of being a consistent payer.

If you’ve just finished a DMP then it’s important to be incredibly careful about taking out new credit.

It’s very easy to slip up and get back into unmanageable debt, so don’t bother getting a new credit card or a loan if you don’t trust yourself to pay it off in full every month.

Keep applications to a minimum…

Don’t apply for lots of credit products all at once. It’s a bit like dating: if you get knocked back by one person and then go asking out everyone else in sight you’ll come across a bit desperate. Lots of applications in a short space of time will make you look like a bigger risk to the company you’re applying to.

…or just enjoy a debt-free life

Most people finishing a DMP will have spent many years getting themselves back on track. If you’ve just got yourself out of debt then it’s probably a good idea to enjoy being debt free for a while before taking on any new debt.

It’s not always possible to avoid taking out debts but one of the benefits of being on a DMP is that it helps you to live to a budget. If you can keep to your budget after you finish your DMP then you should find it possible to save up for many things you want, without needing to take out any credit.

And that gets to the crux of the matter: whether you follow these tips to improve in your credit rating or not, it’s always important to think very carefully before you take on any new debt, whether you’ve been through a DMP or not.

James Winterbottom has been a debt advisor for six years. Away from work he is an amateur app developer and writes fiction. James is a lifelong supporter of Huddersfield Town football club, which suggests he is either very loyal or very daft. He also likes to talk about himself in the third person in bio pages.

Written by

Tags Living with debt