Each credit lender has its own bespoke scoring system when deciding who it lends to.
This means there is no one fixed route to credit attractiveness. Instead, it is about using a series of tricks which will hopefully make you more appealing when applying.
Since the crunch started five years ago, our credit worthiness has become ever more important. Not just for the obvious mortgage and credit card applications, but for car insurance, energy contracts and mobile phone ones.
And it is not just about acceptability. These days most products are rated for risk, which means those with a good score get better deals. So it is crucially important to improve your credit profile. Here are my top tips:
It is about profit, not risk
The aim of credit scoring is to assess whether you will be a profitable customer. Note I am not saying risk, but profit, ie, will you make them money? Of course, for most companies, a bad risk is not profitable, so you are out. But it is about far more than that, which is why you can be rejected even if you have a blemishless credit history.
They assess how good a customer you are likely to be by attempting to predict your future behaviour. The more they know about you, and the better that behaviour, the better chance you have got. Therefore:
Time applications — Too many in a short space of time looks desperate.
Stability is good — Put your landline, not your mobile, on applications.
Prioritise — Get key ones first, eg, a mortgage before a mobile contract.
Get on the electoral roll — If you are not, getting credit is tough.
Issues wipe after six years — If you have past problems and are close to being wiped, wait.
Check your credit file
Errors can kibosh applications, so check files annually and before big applications. You have a legal right to see your file for £2 at Equifax.co.uk, Experian.co.uk or Callcredit.co.uk. Or for an easy trick to get it for free, see www.moneysavingexpert.com/creditrating.
Bizarrely, getting a credit card can rebuild your credit rating
A key to (re)building credit worthiness is to prove you can behave well. Therefore, almost perversely, the best way to do this is to get a credit card, spend on it each month and never miss a repayment. Plus to protect your own pocket, always repay in full by direct debit, so there is no interest.
The best poor credit scorers’ credit cards – earn £100 cashback
Of course, the problem for many poor scorers is getting a card to (re)build their score with.
Thankfully, right now, there is even a cashback credit card (one that pays you to spend on it) available to poorer scorers.
Aqua Reward pays a big three per cent cashback and even allows some with Count Court Judgements (CCJ)/defaults (if over a year old) can get it. If you can’t get Aqua, the perkless Capital One Classic accepts some with recent CCJs and defaults, or made bankrupt over 12 mths ago. Though both are a horrid 34.9 per cent representative APR if you don’t repay in full.
The “if all else fails” options require you to shell out, so it is touch and go as to whether it is worth it.
Capital One’s Secured Card needs a £49 or £200 deposit for a £200 credit limit. It’s 34.9 per cent rep APR, so always fully repay.
Once your credit has improved, close the card and your deposit is returned.
Or pay the Cashplus Credit Builder prepaid card monthly (total £65/yr), and it reports payments to credit reference agents. After a year, it counts as a fully paid loan agreement.
Marriage doesn’t hurt, but joint finances do
If people are credit-linked, one person’s file can affect the other’s application. This is not about marriage, co-habiting or holding hands. Linkage comes from having a joint mortgage or bank account, but not credit cards, as they are “second cardholders”.
So avoid joint products if you are in a relationship with someone who has credit issues. If you separate from a partner and are no longer linked, write to the credit reference agencies and ask for a “notice of disassociation”.
Don’t shell out to find your “credit score”
Each lender scores you based on its own secret algorithm assessing. They don’t just look at your file, but any past dealings with you, as well as your application form. So buying a score just based on your files is not that relevant. If you get it free, great — but I wouldn’t pay for it.
Cutting the cost of existing debt means repayments clear more actual debt, instead of just covering interest –— helping your score. The easy way to cut the cost of debt is to do a balance transfer. This is where you get a new card that pays off the debts on existing cards for you, so you owe the new card the money at a cheaper rate. Right now, up to 22months 0 per cent is available or you can lock in at 5.9 per cent for life (with fees). Full info on how to choose and the best deals at www.moneysavingexpert.com/balancetransfers.
Repay by direct debit, even if the amount varies
To protect your credit score, never miss repayments on anything. It hurts your score. With cards, if you can’t always fully repay, set up a direct debit to cover the monthly minimum. Yet as that will hardly touch your debts, always try to manually repay more on top.
Small address errors can mean big problems
When checking through your credit file, ensure all active accounts and bills are for your current address (or close them). I once heard of an old non-cancelled mobile bill listed at the wrong address scuppering a lady’s mortgage application.
Close unused cards
Too much available credit adds to the risk and lenders don’t like it, so cancel unused cards. Yet if you have other card debts, first call and ask if it wil let you shift debts to it cheaply — protecting your score by avoiding new applications.