 Home
Credit Scoring Explained
Your Credit File
Bank Accounts
Credit Cards
Mortgages
Car Finance
Usefull Links
Contact |
| What is Credit Scoring ? Credit scoring is the term used to describe the processes lenders use when deciding whether to accept or decline an application. In addition to a credit check through one of the big reference agencies, lenders typically assess applications using their experience of the behaviour of previous and existing customers. They develop 'templates' of circumstances which in their experience indicates the probability of a customer being responsible and credit-worthy. So for example, if they have found that most applicants over the age of 40 turn out to be good customers, they will give an applicant who is 40+ a higher 'score' than one who has the same circumstances but who is under 40. What affects my Credit Score ? Criteria which typically carry a 'score' are: age, family commitments, home ownership, length of time at address, length of time with bank, already holding credit cards, and so on. As you might expect, being a homeowner scores more highly than being a tenant or living with parents. Since most application forms don't ask specifically *where* the owned home is, if you a own property anywhere (even overseas), you can count as a homeowner even if you are renting at your current address. Interestingly, it is not possible to verify your homeownership status without further documentation, and if you say you are a homeowner, most lenders will take you at your word (exception being for mortgages and secured loans). Family commitments is a scoring area which surprises many people. For some reason, it is more higly scored to have two dependent children than any other number (including zero). As application forms rarely ask whether the children are living with you (as opposed to an ex-partner for example), and NEVER ask whether the children are biologically yours, it is impossible to verify this information. Length of time at address is important, not only because it enables
lenders to credit check all past addresses over a period of three
to five years, but also because it indicates stability. However,
if you have recently moved but were at your old address for more
than three years, it needn't present a problem. It always helps
if you appear on the Electoral Roll, again as a sign of stability,
but many people are not on the Roll (for example because religious
beliefs forbid them voting, because they work overseas and are not
at home when the Roll is taken, or because of protests over the
old Poll Tax). Some lenders are aware of this, and will accept other
proof of address (for example an utility bill or bank statement)
instead. The models that are used to determine credit scored vary and so I can offer no assurances that by following one or more of the suggestions below, you will get a great credit score. However, I can assure you that it will do little harm! The most obvious one is to pay your bills on time. Remember one slip up can result in a default which shows on your file and can affect your credit score. Your employment can also have an effect. If you are changing jobs every three months, then rest assured that in many cases, this will decrease your score. The same can be said for your address. Most lenders look for you to have lived at an address for at least three consecutive years. (Of course this is of little use if you forget to fill in your register of electors!) Trust me on this, I know! Even having plenty of credit can have an adverse effect on your credit score. If you have a credit limit of say £10,000 and you currently have debt commitments of £9,000 and then apply for a loan of a further £5000, this can effect your score. Try to space out your credit applications. Too many searches on your credit record can have a negative effect too. More so if they are for the same type of credit. To improve your credit score under most models, concentrate on
paying your bills on time, paying down outstanding balances, and
not taking on new debt. It's likely to take some time to improve
your score significantly. Are homeowners with no mortgage (eg paid off mortgage or inherited property) Have two dependent children Are on the Electoral Roll at their current address Have had a clean address for three years or more Have been with their current employer and bank (in good standing) for at least three years Have existing credit cards, cheque card and a well-conducted loan/HP agreement The quickest and easiest way to improve your credit score is to obtain one or more store cards. Cards issued by GE Capital Bank tend to be the easiest to obtain, requiring only a clean address and either a cheque or credit card in the applicant's name. GE issue cards on behalf of Debenhams, Burtons, Evans, Adams, Dorothy Perkins, Top Shop and other High St stores. You can apply in store with the minimum of fuss, no proof of address, etc. It does not matter if you are not on the Electoral Roll. Holding any of these cards will assist you with applications for further credit facilities. It also assists applications for credit if the applicant has a cheque guarantee card, though because of the Data Protection Act, lenders cannot actually confirm with your bank that you do hold a card. However, if your bank account details do not correspond with a type of account that issues guarantee cards, you must state that the guarantee card is actually issued on another account. Otherwise, lenders will assume you are lying, and decline the application. They may ask for the details of the card-issuing account. |