Learn to Play Their Game (How to improve your credit rating)

Member Name: Tricksty

Product:	How to improve your credit rating
Date:	25/10/05 (1214 review reads)
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Advantages: Get what you want

Disadvantages: Get more than you can Handle

How to improve your credit rating

Some MYTHS about credit ratings:

1. If you don’t pay off your credit card, you’ll get put on a black list.
2. Black lists are shared between banks and other financial institutions.
3. Your credit rating is affected by other members of your household who have run up debts.
4. Your credit rating is permanent.

If you want to apply for a loan, credit card or a mortgage, the usual process, as we all know, is to fill in application form, and wait for a decision. What actually happens at the banks’ end? How do they make their decisions so quickly about issues which are so important to us? How on earth do they know if we are likely or not to be able to pay back our debts? And just how much information is kept on file about us, regarding our finances, which after all are a private affair?

Whenever you apply for credit, the company you want to borrow off will consult what is called “Credit Reference Agency”. These guys are the Big Brother of the 21st century, and have a massive database which contains a scary amount of information about you, dear reader. The information they hold about you is tied to your name by the simple fact of you being registered on the electoral roll. If you’re not on the electoral roll, you are deemed to not officially exist, in banking terms, and this fact alone will probably be enough for the company to refuse you credit. So step number one:

· Get yourself on the Electoral Roll. Now, as the council will only post electoral roll forms through your letter box once a year (or less, if they’re busy), it’s a good idea to take the initiative if you’ve just moved house, and phone your local council. They should be able to send you a form, which will speed the process up.

The credit reference agency, of which Experian is one, keeps lots of information about you. Every bank you’re with will send them monthly reports about money you owe, whether you make your repayments on time, and whether you’ve ever missed a payment. They know how much each payment is (for your mortgage, your car, your student loan, your Next catalogue- EVERYTHING), and when/if you paid it. They keep records for 6 years. They also keeps tabs on every change of address you have, name changes, your age (naturally!), and what you had for breakfast (joke). Very importantly, they keep a record of EVERY TIME YOU APPLY FOR CREDIT, regardless of whether you go through with the agreement. This is known as a “search”, because each time you apply for credit, the database is searched. Not only will this happen if you apply for a loan, but it also happens if you fill out an application for a catalogue in magazine, for example, even though you may have no intention of buying anything on credit with the company in question. They do a “search” in advance, to know whether they will trust you with credit should you ever apply. This is rather crafty, and you should always read the small print on catalogue application forms. If it says “a credit search will be logged” or something similar, think again before signing.

Every company that gives credit has its own criteria for allowing borrowing. ABC bank may want to attract young, student customers; XYZ bank may prefer 50-something professionals. They each develop their own credit scoring system, whereby various facts about you are worth a different number of points. Therefore, if you’re only 18, XYZ bank will give you a low score for your age, but if you’re 49 you’ll get full points. Having said that, most respectable high street banks and other lenders use more or less the same kind of scoring, so I’ll sum up here what’ll count for and against you, and try to explain why, if there’s any logic to it!

· AGE- as mentioned above, you will generally get more points the older you are. Ages are usually banded; 18-25, 26-35 and so on. Each lender decides how. Sorry guys, but lying about your age is not recommended!
· EXISTING DEBT- although the credit reference agency doesn’t hold details of your salary, you usually have to put this on your application form. They will look at you salary and existing debt. If you earn £15,000 and owe £5,000 it’s not looking good. Your existing debt is looked at in an effort to stop you over-reaching yourself. If you can’t pay them back, why would they lend to you? Don’t borrow too much!
· PAYMENT HISTORY- or “better the devil you know”. Most lenders are reluctant to be the first to lend to someone. Your payment history is examined to see whether you actually pay your interest and monthly payments on time and in full or not. Ironically, if you don’t owe any money, you won’t have a credit history and they’ll have nothing to judge you by, which means no points in this category. Catch 22, yes. Pay your bills on time
· CHANGE OF ADDRESS- if you move house frequently this will count against you. Once in a three year period is acceptable for most lenders. The more you move, the dodgier it looks. They reckon it shows you up as an unstable kind of person, or someone who is trying to hide their tracks. If you’re a student, keep your finances registered at your parents’ address (unless they move a lot too- it’ll do wonders for your credit rating!)
· CCJ’s –or County Court Judgements to you and me. You’ll get served one if you don’t pay a bill, including utility bills (although not immediately- it’s the final straw.) They stay on your record and will give you an immediate refusal from ALL lenders who are reputable. Companies which advertise as CCJ’s accepted are looking for people with nothing, to take their last pennies and keep them in debt forever- avoid them at all costs. If you do get a CCJ but you later pay the bill, you can ask the credit reference agency to delete it from your record, but it’s up to them whether they do so.
· CREDIT SEARCHES- if you like filling out coupons, stop right now. The number of applications you make is logged, and if you are seen as being rather desperate for credit, it will count against you. Unfortunately, this can mean that filling in a few catalogue forms means your car loan is refused. Read the small print, as noted above!


Now for some of those myths:

· There’s no such thing as a black list. Each lender evaluates the information stored about you in different ways. You could look at a CCJ as a black mark though.
· Banks don’t share information with each other, only with the credit reference agency. They are the 3rd party, and are not a lender. They supply facts, not decisions.
· Until November 2004, other people in your household could affect your credit rating. So if you lived at home and your brother didn’t pay his mobile phone bill it could stop you getting a TopShop card, for example. The law has now changed. You are linked financially to your husband or wife. You are not affected by other members of your household with whom you have no real financial relationship.
· You credit rating is determined independently by each lender, and evolves through time. Records are kept for 6 years.

The main credit reference agency in the UK is Experian. You can, currently, get a free look at your own credit record, if you go to their website at http://www.joincreditexpert.com. If you think there is a mistake, or you have been linked financially to someone incorrectly, you should let them know as soon as possible. Outside of this promotion, it usually costs £1 for a copy of your record. By law, you are entitled to see any information that is held about you on any computer anywhere. The pound is an administrative cost. I strongly recommend that everyone check their file, especially while this promotion is on. You’ll get your report by email, and it is vital for everybody to know that the information stored about them is correct.

One final word- Having a good credit rating is nothing to be proud of. I happen to know that mine is fairly glowing, as I’ve known for several years how the system works and how to get the advantage. On the other hand, as readers of my “credit card” advice piece will know, I am in debt and will struggle to pay it off. Bear in mind that the perfect customer for most lenders is someone who pays on time, but only ever pays interest- that’s pure profit for them.

Thanks for reading.

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