Money Mensch: Card tricks for the credit-score game
Who says politicians don't do anything for us? There's a general election coming and that's good news - it's a reminder to register to vote.
You may be asking: "What's this got to do with MoneySaving?" Appearing on the electoral roll also acts as a massive boost to your credit score. In fact, if you are not on the electoral roll, it almost completely stymies your ability to get new credit.
So, if you're planning to get a mortgage, a credit card, loan or monthly car insurance, ensure you are registered to vote. If you are ineligible, perhaps as a foreign national, instead send all the credit reference agencies (more later) proof of residency and ask them to add a note to your file. Electoral roll data is only one factor that affects your credit worthiness. How credit ratings work is commonly confused.
What's my credit rating?
No one has a universal credit rating. There's no 'number' out there indicating whether you are a good or bad risk, even though some credit reference agencies try and sell you indicative ones. Nor is there a 'credit blacklist' which if you are on it means no one will lend to you. Though, if you've a poor history, if it may feel as if you are on a blacklist, because most lenders have a similar attitude towards those who have not repaid past debts.
Every lender scores you according to its own wish-list of what constitutes a profitable customer.
How does credit scoring work?
Lenders aim to predict your future behaviour by looking at how you have behaved in the past. They analyse the details on your application form, past dealings you have had with them, and the billions of bits of financial information that make their way onto credit files at the three credit reference agencies, Equifax, Experian and Callcredit.
Don't think this is just about whether you are a good or bad risk. It's all about whether you're likely to make them money or not. Of course, if it looks like you'll never repay, you'll score badly. But, equally, someone who always repays credit cards in full every month isn't desirable, as lenders don't make much money out of them.
No credit history?
That makes things tough. Lenders have less info to go on to predict your behaviour. You don't have a right to borrow money and they would rather risk rejecting a few good customers than mistakenly lend to a few bad ones.
Other than traditional starter forms of credit, such as university or youth bank accounts or store cards, it's likely to be tough to get any credit at all.
The best way build or rebuild credit scores is with a credit card. If you have no history you'll be looking at the hideous 30 per cent plus rate ones - but don't worry about that. The aim's to spend a little on it each month and repay in full so there's no interest. For a list of cards: www.moneysavingexpert.com/badcredit
Boost your credit score
There are many things you can do - as well as getting on the electoral roll - that should make you more attractive a proposition.
● Time applications correctly. Every time you apply for a product, a search is entered on your file. Lots of searches in a short space can damage your score, so if you have not got a good score, spread applications out and apply first for the things you need most.
● Keep up payments and never be late. At the very least, ensure that you always make the minimum payment on any financial products. The easiest way of doing this on a credit card is to set up a direct debit to automatically pay the minimum. Yet as just doing that hardly clears the debt, always pay off us much as you can on top.
● Beware joint finances. It's not marriage or living with someone that means you have co-joined finances. What links you is having a joint bank account or mortgage. In that case their history can impact your applications. So if you get together with someone with a poor score, don't get joint products (there's no such thing as a joint credit card though, just a second cardholder). And, if you split up, then once your accounts are separate or no longer active, write to the credit reference agencies and ask to be disassociated.
● Regularly check credit files for errors. Errors on your file will kibosh applications. Worse, if you keep applying even once the error is fixed, so many applications could mean you won't get credit anyway.
Free credit information
While you have a legal right to write to Experian, Equifax and Callcredit with a £2 cheque to get your file info, there's a way to do it instantly for free with the big two. Simply sign up for a free month trial of their expensive credit monitoring services which gives you your file online - and then cancel immediately. See www.moneysavingexpert.com/creditcheck for full how to cancel.
If there are any errors, ask the company responsible to correct it. If they refuse, you've a right to have a "notice of correction" on your file and can complain to the ombudsman.
● Check the address on all active accounts. On your file, something as small as an old mobile contract that's still registered as active to an old address can cause big problems. Check all details are correct.