Newsletter 2
Case Study # 1 – IJ Top Tips – How to improve your credit score
As a result of the much maligned UK Credit Crunch, lenders are tightening their belts and to an extent cherry-picking clients. The main issue here is if your credit score is not up to scratch, then you could find yourselves short on options when it comes to obtaining a new Mortgage or Remortgage.
In this Case Study, we provide our Top Tips on how to improve your credit score or to ensure it remains attractive to a lender.
When you apply for credit, lenders are able to contact a Credit Reference Bureau who holds details of all your current credit commitments, your address history (Voters Roll registration) and how you have conducted these accounts. They will use this information and their own criteria to decide if you are ‘credit-worthy’. Your credit score will often be a number, the higher thanking, the better your score, or often lenders grade you alphabetically – A to C with anything below a decline on their credit score system.
So, what can you do to improve your credit score?
• Pay your bills! The conduct of your existing credit commitments (your credit history) shows potential new lenders how you have conducted yourself previously. This can count for up to a 35% weighting on your credit score. This is also why you often hear of people declined credit when they have never had any debt, as lenders are unsure as to how they will conduct themselves when faced with a credit commitment for the first time.
• ij – A simple tip to stop missed payments is to set up direct debit mandates for everything possible and have a separate bills account. You should also set up a direct debit for minimum payment on your credit card to ensure consistent monthly payments. This will help you build a stronger credit rating.
• Sort it out! If you do run into problems and have ended up with a black mark against your name, this can dramatically affect your chances of obtaining the best interest rates on the market. If you have a default or County Court Judgement registered against you, then this needs to be paid in full ASAP. However, it will still be registered against your credit file and cause problems for up to 6 years! So, if you have evidence of errors on behalf of the issuing company, do all you can to get the black mark off your credit profile.
• ij - Extra care should be taken when moving addresses as often bills (mobile phone, satellite TV) are left behind at the previous address and the company will write to you there! The Royal mail redirection service can also assist you with this and help to stop fraudulent use of your personal details.
• Being on the Voter’s / Electoral Roll at your current address will also gain you points on your credit score. Your Local Council will have these details but you should also know when you get your voters roll renewal information through the post.
• ij – if your occupation involves you moving around a lot or having a less than permanent address it will be advantageous to stay registered at a family members or trusted friend’s house. This can also be helpful in the battle against credit fraud if you have all your statements, etc sent there also. Lenders usually request a 3-year address history and the simpler this is, the better.
• Time on your hands? Being with your bank, credit card companies, in your occupation and any other signs of a stable credit history help you to build a healthy credit score.
• Ij - Too many credit searches can alarm lenders that you are applying for lots of credit and thus are struggling to obtain credit. This will go against your score. The odd credit search does not harm but a dozen can often mean a failed score!
• Cardinal Sin! For existing mortgagees, the worst thing you can do is to miss a Mortgage payment. This will be seen on your credit report for years to come and will be heavily detrimental to your lending ability for 12 months. After that time, the effects do reduce but it may still cause some lenders to decline your application.
• ij – Some lenders may verbally agree that you can miss a payment but what you need to know is will it be registered as a payment holiday or a late payment? You should try to get this in writing from the lender.
Often arrears and a poor credit history can result from unrealistic expectations. You should always be careful not to over commit yourself as rather than progressing your financial future, this can ultimately hold you back.
As always, affordability is the key. Care should be taken to account for the unexpected and pre-determined future changes to income and expenditure. An emergency fund of savings will help you maintain a good credit score by allowing you to keep up with commitments during times of hardship.
If your income is variable, it may also be useful to look at a Flexible Mortgage. These allow you to make overpayments, underpayments and payment holidays within set criteria. Contact Us for more information on Flexible Mortgages
Useful Links
www.experian.co.uk
www.equifax.co.uk
Credit Reference Agencies to find your credit score and see the information companies are seeing
http://www.moneymadeclear.fsa.gov.uk/guides/get_to_grips/get_to_grips_with_your_money.html
Budgeting advice for the FSA’s Consumer Website
http://www.royalmail.com/portal/rm/product1?mediaId=600008&catId=5200021
Royal Mail’s redirection service
Contact Us with any queries relating to this or any other matter.