The secret path to a better credit rating

An excellent credit rating is the must-have financial accessory of 2009. It can add up to a difference of tens of thousands of pounds in interest for house buyers and make a significant impact too on the type of credit card or loan you might be offered.

Peter Harrison, credit expert at price comparison site moneysupermarket.com, said: "If you need a mortgage then naturally you want the best possible deal. Your credit rating will play a major role in deciding whether you get a low or high rate or - worse still - are rejected.

"It's an identical situation with loans, which can easily vary from eight per cent to well over triple that amount.

"As for credit cards, people will always want a card with a benefit, whether that is cashback or a zero per cent offer. A credit rating with a blemish will increase the likelihood of rejection or only being able to get a card with a high interest rate and no tangible benefit."

Peter Harrison's ten tips to improve your credit rating are:

Enroll to vote. Lenders check the electoral roll to confirm your address. If you aren't on the roll, your rejection is likely to be swift.

Get a mobile phone contract. If you have or need a mobile, then having it on contract and paying it in full and on time will boost your rating.

Get any sort of credit card and manage it well. People often balk at cards, such as Barclaycard Initial or Capital One Classic, that have rates of between 27.9 and 34.9 per cent. But the bottom line is this - if you pay off your card in full each month, you won't be charged any interest.
- These cards are much easier to be approved for and avoiding interest on them will greatly improve your credit score.
- And having one card is far better for your credit score than not having any at all.

Set up direct debits for your bills. Even missing the smallest payments will adversely affect your rating. Having direct debits shows you are a responsible customer with a steady income. Most bills will also be cheaper if you pay by direct debit. For example, the saving on gas and electricity can be hundreds of pounds.

Stay at least 10 per cent below your credit limit. Taking your spending close to your credit limit can be taken as a sign of financial stress. Not skating too close to the edge also eliminates the chance of you being charged £12 for exceeding your limit - and losing any introductory offers you might be on.

Close credit cards you are no longer using. Having five or more cards will have an adverse effect because your total credit limit will be unnecessarily high. So close any credit cards that are gathering dust. It is generally acknowledged that three credit cards - each with a different benefit - is an ideal number.

Leave your old current account open. If you get a new current account, don't close your old one. Leave at least £1 in your old account because banks like to see that you have had a current account for at least three years.

Don't fire off too many credit card applications. Constantly applying and being rejected will further damage your credit rating. It's best to apply for a card that you have a good chance of being accepted for. If you are turned down, wait a month or so before trying for a different card.

Don't exceed your overdraft limit on your current account. Not only are the penalty charges exorbitant, but it will affect your credit score.

Don't withdraw cash with your credit card. Taking out cash is a credit rating downer. It also accrues high interest charges straight away and, with most cards, when you go to clear the cash advance, the payment will instead be assigned to paying off a purchase.