Lots of credit to be had by checking your score
IT sometimes seems like every third advert on the television is for a credit agency. You’ve got the geek type and his ‘data self ’ and then there’s the gormless combination of the woman, her partner and the speaking dog.
Utterly dire.
Trouble is that building a good credit score, also known as a credit rating, is crucial because it can impinge on your ability to borrow money.
Whatever the wealth of a client, be they a first-time buyer or a senior manager in a major company, the issue of credit scoring and its effects, including the cost implications to purchasing or re-mortgaging their home, tend to come as a surprise.
First-time buyers especially have no track record of borrowing so can’t demonstrate they are capable of making regular repayments. Therefore they should open up a basic credit facility such as a credit card, use it, but pay it off in full each month. This helps build up the score and a track record.
Martin Lewis, of MoneySavingExpert.com, cautions: “Everyone should take time to manage and boost their credit score. It’s no longer just about whether you can get mortgages, credit cards and loans, it can also affect phone contracts, monthly car insurance, bank accounts and more.
“Yet, in the UK, credit ratings are shrouded in myths.
“The world of credit ratings is rife with misinformation and misunderstanding. Much of it’s because
lenders don’t want it understood.” The Financial Conduct Authority has announced it will review the market to determine how it can better work for consumers.
Christopher Woolard, a director at the FCA, said: “Through the study we will seek to get a better understanding of how this vital market works and will identify remedies, where appropriate, to make it work more effectively for credit information users and individual consumers.
“This includes considering whether vulnerable customers are disproportionately affected by the way credit information is used, and whether any alternative approaches might deliver better outcomes for consumers.”
There are three main credit scoring agencies: Equifax, Experian, and TransUnion.
You have the legal right to see a copy of your credit report for free. You can request this from any credit reference agency that holds information on you.
In general, your file will include name, address and date of birth, credit applications, financial links to other people – for example, a joint loan or bank account, any late/ missed payments or defaults, how much money you owe to lenders, any County Court Judgments against you that are not paid in full within one month of receiving the notice, if you have been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).
It won’t include your salary, student loans, medical history, criminal record, council tax arrears, parking or driving fines.
However, you might be asked for this when applying for a loan or contract.
A good credit score with TransUnion is 4 out of 5, for Equifax it is over 420 out of 700, while Experian demands more than 880 out of 999.
Most negative marks will remain on your file for at least six years.
There are things you can do to improve your score.
MoneyAdviceService recommends registering on the electoral roll, checking for mistakes on your file, paying your bills on time, taking up the matter immediately if someone applied for credit in your name without your knowledge, moving home a lot can be a downer as lenders feel more comfortable if they see evidence that you have lived at one address for a considerable period.
As those pesky ads urge… it’s worth checking your credit report regularly.
Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners, based in Solihull. Email: tlaw@eastcotewealth.co.uk
The views expressed in this article should not be construed as financial advice
Credit ratings are rife with misunderstanding. Much of it’s because lenders don’t want it understood
MARTIN LEWIS