Easier said than done (How to improve your credit rating)

Member Name: Coxy1974

Product:	How to improve your credit rating
Date:	28/05/07 (412 review reads)
Rating:

Advantages: Makes getting further credit easier

Disadvantages: Getting into debt is not fun

Thought I'd add my two penneth in here.

I'll start by saying that I have 13 years worth of experience working the credit industry so know how the system works inside out and what I don't know about a credit file isn't worth writing on the back of a postage stamp.

So what is a credit file?

The express intention of a file of information about your past credit history is there for the intention of...

A. Providing other lenders with information on how you have managed your accounts in the past

B. How you manage the accounts you currently have

C. Advise of bad debt

D. Advise of fraud information

There are 2 main credit reference agencies. These are Experian - Nottingham based and Equifax - Glasgow based. There are other smaller ones Call Credit being one of those. Experian is actually owned by a catalogue company called Great Universal Stores or GUS for short (I know this little known fact because I worked at Experian for 5 years) but oddly it isn't a client of any of the catalogue companies that come under the GUS family umbrella.

Basically what happens when you apply for credit is that your file with Experian and Equifax is checked. Depending upon the lender the CRA (Credit Reference Agency) will be asked for either the full information or a coded version of it in the form of a Delphi or Wescore (Delphi is Experian and Wescore is Equifax). Both the Delphi and Wescore are lifestyle scores depending upon the information held such as how many accounts are open, previous and present credit history along with monitoring how credit hungry you actually are (how many other applications for credit have you made in the last year). Again depending on the lender they may take the decision to decline based solely upon the information provided and the scores provided.

There are certain pieces of information that will make you lose points such as County Court Judgements, Defaults, Bankruptcy, Voluntary Arrangements, Sequestrations and many previous Searches for credit. All of these indicate that you are a bad credit risk.

The basic function of a credit file is to help lenders maximise lending whilst minimising risk.

How is the information used?

It's used in many ways. Credit companies will check files and depending upon their procedures will also check back to other addresses you may have been known at in the past 6 years including any second addresses that you may have. They will do this because any information will last for 6 years from it's last update date with the exception of Searches and CIFAS information. It is used to decide whether to lend, to confirm Identity and address details and also can be used to combat identity fraud.

Credit File explained.

I thought it might be useful at this stage to explain the areas you will see on a credit file should you request yours from one of the agencies concerned.

Voters Roll - this is public information and is the Electoral Roll

CCJ - County Court Judgement. If you have one of these then you usually have been invited or appeared in court and ordered to pay the lender a set amount each month because you defaulted on payments from the original account.

Bankruptcy - If you have one of these you have declared yourself bankrupt with the court and have wiped clean a good portion of debt with it. This will be valid for a year from the date you declared yourself bankrupt and you must declare this on any application for credit. Lenders view this as being morally wrong to lend to someone who is bankrupt.

Voluntary Arrangement - Bit like a bankruptcy but you have come to arrangements with the court to pay into a fund which is distrubuted amongst all of your creditors to pay them all off and this will only be concluded once the last payment has successfully been made. Failure to comply with the terms will result in Bankruptcy.

Sequestration - Scottish version of a Bankruptcy. Same terms apply.

CIFAS - this is an acronym of Credit Industry Fraud Avoidance System. This organisation made up of lenders allows them to operate under a loophole in the data protection act and share information on fraud that has been committed at the address whether this be in your name or someone elses. This is the only piece of information on a credit file that matches at address level. Fraud is in different categories and can be loaded to protect the identity of the residents of the address.

CAIS - Credit Account Information Sharing (Experian) or Insight (Equifax) - These are all the accounts previously and currently held. Displays name, address, lender, credit limit, balance, payment history and current status. Basically if the payment history says 000000 then this is good because it means that you have never missed a payment. 1 means 1 missed payment, 2 means 2 consecutively missed payments and so on.

Previous Searches - any applications for credit in the last 12 months.

All information on a credit file will match with the person who has been searched directly and not at address level with the exception of Voters Roll and CIFAS.

It is a common myth that people believe that their address is blacklisted. There is no list and no address is blacklisted or prevented from gaining credit. It may be that there is CIFAS information that the lender is obliged to check under the regulations set down by the Financial Services Authority.

Reasons your application may be declined

Basic scoring principles - you may not have enough credit to deem you a good credit risk

Bad debt in your own name

Overexposure - this means that your available amount of credit at the minute far exceeds your current income. An underwriter and the subsequent lender is obliged to lend responsibly and not to add to this exposure. This is what gets people into debt in the first place.

Owing more that you earn.

Applying for the wrong kind of credit card or wrong product. Oddly, the kind of card or product that you apply for can mean that you need different amounts of points to be accepted for it. Most companies will not disclose their lending criteria and each is different depending upon what product you have applied for.

Fraud Information other than CIFAS - this could include credit information that may be at different addresses to those that you have declared on your application form. This can lead lenders to believe that you may have moved from your current address to a different address and fraud may be occurring from the address you have just vacated.

How to improve this

For a start and this is easy to say - don't get into financial difficulty. But this is easier said than done and I have gotten in a little over my head in the past before I started to understand how all of this information is interpreted by other companies.

If you have no credit history

Then how are lenders supposed how good you will be at repaying - if you have no history they have nothing to work from statistically to show how good you will be as a customer to them. Try opening a couple of mail order accounts or a mobile phone account. This will show with one of the two major agencies and after a few months of paying it properly it will bump up your rating. Don't go mad though as too many previous searches will show that you are credit hungry.

If you have poor credit history

Then take positive action and try to consolodate your debt into one. Speak to the CAB (Citizens Advice Bureau) who will help you draw up offer letters to everyone that you owe credit to and offer them a certain amount. No credit company can come after you for money or assets that you genuinely don't have and they would be laughed out of court if they did. They're much better off accepting a decent offer to repay than taking you to court, paying legal fees and ending up with the court awarding them the same amount or less.

If you are declared bankrupt

Don't apply for more credit. Morally lenders see this as wrong to lend to people who are up to their ears in debt. Speak to a debt councellor such as the CAB.

If you are asked to provide proof of who you are and where you live then send the exact documents that the company ask for. You are required to send in an original and it must be dated within the last 3 months and also demonstrate activity. Acceptable documents would be bank or credit card statements and utility bills. Definite no no's are Mobile Phone bills and Internet Print Outs for online banking.

If you are called from the company to ask if you do have any credit at other addresses be honest with them. It can actually demonstrate further affluence if you own a property that you rent out and you have your buy to let mortgage registered there. As long as it all adds up and gives the underwriter a bigger picture of you and your history to allow a profile to be built then this is OK and the lender can then decide how much they can lend based upon this.

Remember - all information with the exception of CIFAS and previous searches only lasts for 6 years from it's last update date anyway. This means that if you default on an account and declare yourself bankrupt say in 2007 by 2013 (as long as you never pay off the defaulted account) it will be wiped from your file. The bankruptcy only lasts for 1 year and will be wiped in 6 years anyway.

Don’t be tempted by these adverts for Debt Consolodation or help agencies. They’re making huge profits off other peoples misery because of debt. If you follow a few simple rules and use the free advice available to you then you won’t ever need to use these kinds of loan sharks who charge the earth for their so called friendly and helpful service to give you peace of mind. Utter bollocks. They’re laughing at people who get themselves into debt, often through no fault of their own and making a huge prfit whilst doing it.

Contact Information

Citizens Advice Bureau - www.citizensadvice.org.uk - I’ve tried this and typed in Debt in the search box on the left of the screen. It brings up about 10 links and if you read through all you’ll receive some very good advice, can get links to template letters to print off to send to companies offering them a set amount per month.

Experian – based in Nottingham and the main credit reference agency. Web address is www.experian.co.uk

To obtain a copy of your credit file navigate to Online Credit Report where you can view your report online for a fee of £2 payable by credit/debit card (ironic!) or you can phone 0870 241 6212 where the fee is £2.50 and it takes about 7 days for a paper report to be sent to your home address.

Equifax – based in Glasgow and is the secondary agency. Web address for ordering your report is www.equifax.co.uk and navigate to Equifax Credit Report. The cost for this is £14.95 for an online comprehensive report.

Summary: Follw simple, sound advice and you'll find out that it is possible to get out of it in the end