To get credit where it’s due you have to play a rat­ing game

The Herald - - BUSINESS - NAOMI CAINE

YOUR credit rat­ing is im­por­tant. It can not only help you to get the best deal on your bor­row­ings, but can also af­fect your el­i­gi­bil­ity for ev­ery­thing from car fi­nance to mo­bile phone con­tracts.

It there­fore pays to un­der­stand how com­pa­nies work out your credit score and make sure you have the high­est rat­ing pos­si­ble.

Rob Holt, di­rec­tor of own brands at store card provider New Day, said: “Main­tain­ing a good credit score is vi­tal to se­cur­ing a healthy fi­nan­cial fu­ture.

“It is im­por­tant to recog­nise that your credit score is con­sid­ered by lenders when ap­ply­ing for credit cards, as well as loans, mort­gages, over­drafts and even other ser­vices such as gas and elec­tric­ity con­tracts.”

Al­though a sur­vey from Equifax­foundthat­n­earlya third (30 per cent) of con­sumers be­lieve lenders share a black­list, the credit ref­er­ence agency’s credit in­for­ma­tion ex­pert Lisa Hard­staff said that the credit black­list is “a myth”.

“When you ap­ply for credit, the lender will look at your credit re­port, but it will also take into ac­count the de­tails on your ap­pli­ca­tion for­maswell­a­sit­sown­lend­ing poli­cies and busi­ness goals,” she said. “It’s ac­tu­ally good news for con­sumers be­cause you can be re­jected by one lender but ac­cepted by an­other.”

Lenders do not only re­ject peo­ple with a low credit score, with those who score highly also some­times be­ing turned away. If, for ex­am­ple, you pay off your credit card in full ev­ery month or you shift from one zero-rate card to an­other you are un­likely to be a prof­itable cus­tomer. The bank could there­fore re­ject your ap­pli­ca­tion.

You can also be turned down for a loan if you have never had any credit be­fore.

Al­ter­na­tively, you could be of­fered a dif­fer­ent deal. For ex­am­ple, if you ap­ply for a zero-rate credit card the bank might of­fer you a card with a higher rate of in­ter­est or a card with a shorter ze­rorate pe­riod de­pend­ing on your credit score.

There are three UK credit ref­er­ence agen­cies – Call­credit, Equifax and Ex­pe­rian – and the lender will con­tact at least one when you ap­ply for a loan. Your credit re­port con­tains a lot of valu­able in­for­ma­tion, in­clud­ing your name, ad­dress, date of birth and elec­toral roll en­try, as well as de­tails of any credit ac­counts you have opened and how you man­age those ac­counts.

“If you ap­ply for any joint credit, such as a joint mort­gage, a link, or fi­nan­cial asso- cia­tion, is cre­ated to the other ac­count holder,” Hard­staff said. “Lenders can take a joint-ac­count holder’s fi­nan­cial be­hav­iour into ac­count when you ap­ply for credit as an in­di­vid­ual.”

Some in­for­ma­tion, such as your salary, em­ploy­ment and med­i­cal his­tory, is not on your credit file, which is why the ap­pli­ca­tion form is also im­por­tant.

It makes sense to reg­u­larly check your credit re­port as er­rors could af­fect your el­i­gi­bil­ity for loans or other credit agree­ments. You have a le­gal right to ac­cess your file for a £2 charge or you can sign up for a free trial with one of the agen­cies, as long as you re­mem­ber to can­cel be­fore the end of the free trial pe­riod. It is also a good idea to check your file af­ter a re­jec­tion in case there is a mis­take on the re­port.

Lenders do not have to dis­close their credit-scor­ing sys­tem, but there are a num­ber of ways to boost your credit score. Here are the top 10 tips to a higher credit score.

Reg­is­ter to vote. If you are not on the elec­toral roll you are un­likely to get any form of credit. If you are not el­i­gi­ble to vote in the UK, send proof of res­i­dency to the credit ref­er­ence agen­cies.

Do not de­fault on loan re­pay­ments, miss a pay­ment dead­line or spend over your credit limit. Most lenders take a dim view of poor credit man­age­ment and could turn down a new loan ap­pli­ca­tion.

Think care­fully be­fore tak­ing out a joint fi­nan­cial prod­uct with some­one be­cause their poor credit score could af­fect yours.

If you split up from a part­ner, make sure you also un­cou­ple your fi­nances.

Do not make mul­ti­ple credit ap­pli­ca­tions in a short space of time. It could sug­gest poor money man­age­ment skills and so lower your score.

Soft search for credit. A num­ber of web­sites al­low you to test whether you are likely to be ac­cepted for a loan with­out leav­ing a po­ten­tially dam­ag­ing foot­print on your credit file. Kevin Pratt of Money­Su­per­Mar­ket said this is be­cause “other providers will as­sume you’re not an at­trac­tive prospect”.

Al­ways keep ad­dresses on ac­counts up to date. If you have a credit card reg­is­tered to an old ad­dress it could af­fect your score.

If you have never bor­rowed any money, the lender has no way of check­ing your credit his­tory. So it might be a good idea to build up a credit his­tory with a credit builder card. The cards charge high rates of in­ter­est, al­though this would not mat­ter if the debt was re­paid in full each month. The aim is to demon­strate that you can man­age credit re­spon­si­bly.

Pay­day loans can af­fect mort­gage ap­pli­ca­tions. You should there­fore avoid pay­day loans if you are – or hope to be – a home­owner. Some lenders also pe­nalise peo­ple who with­draw cash on their credit cards.

Can­cel un­used credit and store cards. If you have a wide range of cards and open lines of credit, a lender could turn you down.

‘‘ It might be a good idea to build up a credit his­tory with a credit builder card to show that you can man­age credit re­spon­si­bly

TIPS: One way to help main­tain a healthy credit rat­ing is to can­cel un­used credit or store cards.

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