Know the score when it comes to borrowing

THE HURTY DOZEN COMMON CREDIT APPLICATION MISHAPS – AND HOW TO AVOID THAT ‘COMPUTER SAYS NO’ AGONY

Our financial lives are a mass of often overwhelming numbers – from interest rates to repayment amounts and bank and card balances.

But among this whirlwind of digits are THREE that are vital to us all, especially in these troubled times.

Our credit score. Whether we like it or not, it’s a points system used by financial institutions to assess how risky we are, mainly when it comes to borrowing – and what level of interest we’ll pay.

If it’s 740-749, that score’s right on the money. No worries.

But 300-579 means you have a lot of belt-tightening ahead of you.

Whether you’re applying for a mortgage, loan, credit card or even a mobile phone contract your score will determine how much you pay – or if you get accepted in the first place.

That’s why it is so important to keep an eye on our credit reports – as well as it being a good early indicator of fraudulent activity being carried out in our names. Yet YouGov research reveals just half of us have checked ours in the past six months.

Six in 10 aged 18 to 24 say they have never checked their credit score – and almost half over-55s said they hadn’t either.

That’s despite almost half of those questioned thinking a good credit score was important.

James Jones, head of consumer affairs at credit data firm Experian, said:

“It’s worth regularly reviewing your finances and credit score, including understanding and avoiding common credit mishaps.

“At Experian we regularly witness the credit-rating scrapes people can get into. And while we’re always here to help, we’d much rather help you avoid these hiccups in the first place.”

Here James takes us through the 12 common mishaps that can cost us vital points on our credit score.

1 Registering to vote under a different name to the one you use on credit applications

Ensure you are on the electoral roll – that’s vital for credit applications– and that you signed up using your formal full name rather than what you may be known as by family, friends and on social media– for example Michael rather than Mickey. Lenders use the electoral roll to cross-check your name, address and residential history – and if things don’t match on your application it could crash and burn.

2 Modifying your address without notifying authorities

Councils and Royal Mail work together to create and maintain an official list of properties and addresses, called the Postcode Address File. Lenders and credit reference agencies use this to fact-check your address. If you modify it, such as changing your house number to a house name, make sure you tell Royal Mail and your local council so official records are updated.

3 Not correctly closing and settling accounts when moving, such as water and TV/broadband

Missed payments stay on your credit report for at least six years and are bad news for credit scores. Ask for final bills from all your providers and keep confirmation that each account has been fully paid and closed. Check your credit report a few months later to make sure you’ve not forgotten any.

4 Cancelling direct debits early when switching energy, phone etc providers

payments automatically, but due to delays caused by the likes of billing cycles and meter readings this can sometimes take a few months.

You’re already covered by the direct debit guarantee so there’s no need to hastily delete them from your bank account.

5 Receiving a court judgment and not paying it off immediately

Judgments, such as those in County Courts in England and Wales and Sheriff Court Decrees in Scotland, put a major dent in credit scores.

Settle any judgments within a calendar month of the court order to ensure it gets ‘set aside’ and won’t appear on the public record or your credit reports.

6 Staying linked to your ex-partner on your credit report

In lenders’ eyes, this means each of your current borrowing habits still affect your credit applications.

Once any joint credit has been closed or changed into just one name, send ‘disassociation’ requests to the three main credit reference agencies, so they can de-link your credit reports.

7 Being refused credit because you failed to check whether you met the lender’s requirements

Making multiple credit applications can reduce your credit score, so shop around and check which deals you qualify for using a credit-eligibility service such as at experian.co.uk.

This will help protect your credit score by registering only soft search footprints until you’re ready to apply.

Missing those payments is bad news. It stays on your credit report at least six years

8 Letting your partner manage all the money and bills, leaving you ‘credit invisible’

Experian analysis suggests around 5.4million of us have little or no credit history, giving lenders nothing to go on and contributing towards financial

exclusion. Get your name on at least a few of the bills and review your credit report and score occasionally to check how your credit history is shaping up.

9 Spending on a credit card right up to your limit – or ‘maxing out’

This can suggest you’re heavily reliant on borrowing. So try to keep all your card balances below 30% of your credit limit.

If you have several cards, consider spreading your spending around, particularly if making a large purchase that month.

10 Breaching your authorised bank overdraft limit

This can be bad news for credit scores, even though these days you’re likely to be charged the same interest rate as authorised borrowing.

Regularly monitor your bank account and try to maintain enough credit for expected payments. Enable balance alerts, if your account has them, so that you don’t end up dipping into the red unintentionally.

11 Closing spare credit cards under the mistaken impression it’ll boost your credit score

In fact, having available credit is seen as a good sign by other lenders. You can’t have too much credit, just too much debt. Even if you’ve no immediate plans to use it, consider keeping an old card open as it could help your credit rating and possibly provide a useful financial buffer in the future.

12 Inflating income on your mortgage application to try to make it look more attractive

Lenders check these things and they may mark you down as a fraud, frightening off other lenders.

Always tell the truth on credit applications and check answers to any questions you’re not sure about.