As every company uses a different credit scoring procedure, pinpointing how any given one will view you is impossible. Yet keeping an eye on your general credit healthiness is important.
You’ve a statutory right under the Consumer Credit Act 1974, to write and get your files, yet this is slow and costs £2 per agency (see the officially checking credit files note). Instead, there’s a loophole to instantly get more detailed info online for free.
How many and how often?
If possible, check all three agencies, there’s no harm, as while doing a check is recorded on your file it does NOT add a ‘search’ so has no impact and an error on any one can cause you a problem.It’s worth doing a check-up roughly every year to 18 months.
A trick to get every file online for free…
Credit ratings have become big business. In the old days the agencies made their money from flogging their data to lenders, but our desire for credit means they spotted a lucrative market to sell it back to us too. Luckily, this leaves open a nice loophole.
The top end service offered is ‘credit monitoring’, which costs around £70 a year (find out more about other credit services). To tempt you in, they offer free month long trials, which require you to set up a Direct Debit or regular credit card payment. Of course, the aim is you’ll not bother to cancel it when the month’s up so it still drips from your account.
The trick…
As part of the monitoring service you get to see your credit file online whenever you want, and laid out in a much easier to understand way than if you order the statutory file.
Therefore sign up, then view your file at no cost (some will be able to do this instantly, some may need to be posted a pass code), using the free trial. Simple!
Here is my personal favorite:
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Experian’s Credit Expert.
Details: Credit Expert offers a ‘free 30 day trial then £6.99 per month’ service which includes your credit report. Don’t confuse it with the Credit Score service which costs a one off £5.95.
There are a number of specific things you can do as good practice to improve lenders’ attitudes towards accepting you for new credit.
- Get on the electoral roll.
If you’re not on the roll, it’s unlikely you’ll get any credit. Write to your local council to ensure you are. For those who aren’t eligible to vote (mainly foreign nationals), send all the credit reference agencies proof of residency and ask them to add a note to verify this.
- Time applications correctly.
Lots of credit searches, the notes left on your file when you apply for things, in a short space of time hurts your score. Space out applications, not just for credit but for car insurance, mobile phones and others, as all can leave searches on your file.
Moving house also disrupts a score, so make important applications pre-moving. Plus you’ll score better when you’re earning, so if you’re about to take time off, go on maternity leave or suspect potential redundancy apply beforehand.
- Building a good credit history/repairing past problems.
Credit scoring tries to predict your behaviour. If you’ve no credit history it’s more difficult for lenders to do this, so you’re more likely to be rejected. Therefore building a history is the best tactic.
Use ‘expensive’ credit cards.
If you can’t get credit, sadly the solution is apply for hideous 30%-ish rate credit cards offered by the likes of Barclaycard Initial, Capital One Classic, Monument, Aquacard and Vanquis.
You can also try the special Smartsearch from comparison site MoneySupermarket, which effectively assesses your credit worthiness (a bit like our Credit Checker), then tries to match you up with the best card.
Importantly, it doesn’t do a credit search, as that itself would hit your credit score. Instead it just asks a few basic credit history questions and works with credit reference agency Equifax to give a rough and ready assessment, followed by indicating ’suitable cards’.
To help rebuild your credit rating, you can use these for six to twelve months, spending a little every month. But there is a vital golden rule….
Strictly repay EVERY month, in FULL, so there’s no interest cost.
After that you should’ve built a credit history allowing you to move into the mainstream. This tactic is also useful for those who’ve defaulted in the past.
As a last resort pay for a special prepaid card.
If you’ve been rejected for cards like this, there is a ‘last resort’ solution. The Cashplus Creditbuilder is a prepaid card costing £9.95, meaning you have to load it with cash before spending, rather than having a credit facility.
Cunningly it charges a £4.95 monthly fee, which technically counts as a £59.40/year loan. As long as you pay the fee every month for a year, this info will be passed on to credit reference agency Experian.
Crucially though no credit check is needed to get the card. Once you’ve made 12 payments, it should show on your credit history as a fully repaid loan agreement, making you a more attractive customer (to those companies who use Experian for credit scoring, which is the vast majority of them) and hopefully meaning you can apply for better credit card and loan deals. Though you are of course paying £70 for it!
For more details on this, including pros and cons, read Cashplus Creditbuilder discussion.
- Keep up payments and never be late.
Always try to follow at least the minimum repayment plan for your financial products. Even if you’re struggling, don’t default or miss payments. Doing this once or twice will cause problems that can cost you for years (though you may be able to get past charges back – see Bank Charges Reclaiming article).
If you are in difficulties, the cliché ‘contact your lender’ is a good one. Hopefully it will try and help a little. Changing your repayment schedule is preferable to you defaulting – and though it will hit your credit score, it’s better than a County Court Judgment (CCJ) against you.
- Marriage doesn’t hurt, joint finances does.
Simply marrying or living with someone with a bad credit score shouldn’t impact your finances, as third-party data (i.e. someone else’s info) doesn’t appear on your file.
Yet if you’re ‘financially linked’ in any product, it can have an impact. Even just a joint bills account will mean you are co-scored. If one partner has a poor history, keep your finances rigidly separate, and it should maintain access to good credit for the other.
As a note, there’s no such thing as a ‘joint’ credit card; technically it’s one person’s account and the other just has access to it.
If you split up with someone you’ve joint finances with, once the accounts are separated, always write to the credit reference agencies and ask for a notice of ‘disassociation’, to stop their credit history affecting yours in the future.
- Get a ‘quotation search’ not a ‘credit search’.
If you’re just trying to get a specific quote for a loan, ask the lender to do a ‘quotation search’ and not a ‘credit search’. This means the enquiry won’t have a negative impact on your credit score. Sadly many lenders haven’t yet adopted this practice, but it is worth asking. If not, do consider whether you really want to get a quote – if it’s unlikely you’ll get the product, don’t bother.
In both the Personal Loan and Credit Card Balance Transfer articles, there are details on special comparisons available to find out who’s likely to accept you, without actually applying. Plus the credit checker gives you an idea for free of the type of cards you’ll get.
- Evidence of stability is good.
Home owners rather than renters, and those who are employed rather than self-employed, tend to score more highly. Putting a fixed (land) line rather than a mobile number on application forms can help with security checks and improve your chances. Being with the same employer, bank and current address for a while all help too.
- Avoid the ‘rejection spiral’.
There’s a nightmare scenario you need to avoid, called the rejection spiral. It works like this…
You apply.
You get falsely rejected due to an error.
You apply elsewhere.
You get rejected again.
This continues, until finally you check your files and get the error corrected.
You apply again
You’re rejected, not due to the error, but because of all the recent ’searches’.
Thus if you’re rejected once, immediately check the files are correct, otherwise you may mess up your score for an age. You’ll be told by the lender which credit reference agency it used to assess your info, so focus on that.
It is possible after an error to get successive searches wiped, but it involves negotiation both with the agency and the lender and isn’t easy.
- Cancel unused credit cards, debts and accounts.
Access to too much credit, even if it isn’t used, can be a problem. If you have a range of unused credit cards, cancel most of them; this lowers your available credit and should help.
- Use any savings to pay off debts.
The amount of outstanding debt you have is part of the info lenders have access to, so minimising this is a clever strategy. In general, you’ll be better off by using savings to pay off expensive debts anyway.
With the credit crunch biting, this is particularly true if the product you’re applying for is a mortgage. People who haven’t paid much of their mortgage debt off are struggling to get decent new deals.
For those with an LTV (Loan to Value ratio) of over 90%, meaning your mortgage debt is at least 90% of the house’s value, getting a new mortgage has become very difficult. For those with an 80% to 90% LTV you should get a new deal, but it won’t be too cheap.
So if you have savings, and can use them to significantly lower your mortgage borrowing, enabling you to get a better deal, it’s often worth doing. The extra amount your savings will earn isn’t likely to be as much as the benefit from a cheaper mortgage.
And a final thought. Though it may be tempting, lying on your application form doesn’t help. Firstly it’s an offence, but also if lenders can’t corroborate your information it’s normally not used for credit scoring anyway.
Get a loan, mortgage, credit card, contract mobile phone or even monthly car insurance and lenders ‘score’ you to predict your likely behaviour. Scoring systems are never published and differ lender to lender, and product to product. So just because one company rejects you, it doesn’t automatically mean another will.
Credit scoring doesn’t just dictate what products you’ll receive, but also how good the ones you actually get are. For example, most loan rates are ‘typical’, meaning the APR depends on your credit score; with credit cards, if your score’s too low for the sexy deal you wanted, you might get a different product entirely.
There are two big myths to clear up though…
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Credit ‘ratings’ and ‘blacklists’ DON’T exist.
You DO NOT have a universal credit rating; nor is there a credit blacklist. It mightn’t feel like that though, as while each lender scores differently, the information they use is similar. A bad risk for one lender is often a bad risk for others too.
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Lenders aren’t obliged to dole out credit.
Applications are aggregated into millions, and banks prefer to deny a few good quality applicants rather than overspend on personalised vetting procedures or accepting large numbers of unprofitable customers.
Credit scoring’s about profit not risk…
This is so important, let me make it as clear as I can.
Even good risks can be rejected simply because they won’t make the bank money!
Banks pick customers for their own good, NOT yours, so the scoring process is about profit not risk. Of course risk plays a part, as those unlikely to repay are a threat to profits. Yet even the most solvent may be rejected if they’re unlikely to act in a way that’ll make profit for lenders.
The credit crunch has only magnified this. The sooner we understand banks are there to make money, not help us, the better we can play the system
It’s about sophisticated customer weeding
At the high end the whole process is about them picking their perfect customers, and their reasons for rejection can seem bizarre on the outside, but make perfect sense to them. For example…
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Credit card companies may reject you for always repaying cards in full.
While you feel like the perfect punter, for credit card companies you’re a nightmare. If they can spot this trend, you’re likely to be rejected. The most profitable credit card customers are those who are perpetually in debt, never defaulting, but always managing to meet the minimum repayment.
Pay off in full every month, don’t use cards enough, or always shift debt to 0% cards, and if they can spot you, they may reject you.
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Your score mightn’t be for the product you apply for.
Imagine this scenario, a banks wants new mortgage customers, yet that’s a costly sell. Instead it draws you in with a current account paying a high rate of interest on a small amount kept in it. Yet, when you apply, rather than scoring you as a bank account customer, it could actually be scoring to see if you’re likely to be a profitable mortgage borrower in the future.
Once you’ve got your credit files, the key is to check the accuracy of the info that banks are judging you on. As we’re talking billions of pieces of data, there are always mistakes. So, quite simply…
Check EVERYTHING! One mistake can be a hammer-blow to credit applications
First the obvious stuff. Are all your debts correctly listed? Are there any inaccuracies on your repayment history?
Yet other details are important too. Check your present and past address details. Errors here can lead to you being judged on someone else’s credit history. Also your finances may be incorrectly linked with someone else’s.
What to do if there’s an error?
If you disagree with anything on your file, just write to the agency and request it’s changed. If the agency agrees it should quickly change the file, though sometimes you’ll need to talk to the company that originally filed the data.
Unfortunately sometimes it may refuse to amend your file. If this happens you’re entitled to add your own comments as a ‘notice of correction’. This will often mean your credit applications take longer, but it may help you to obtain better deals.
Don’t go on too much when explaining the error though, and don’t overly berate. Be concise, explanatory and factual.
