Credit ratings

[Turkish]

This is really p*ssing me off. Anyone an expert as to how they work this sh*t out? I have a relatively small amout of debt about £1.8k split across 3 credit cards, one of them has just doubled my credit limit, currently using 75% of my available credit (not including the recently doubled limit) as i fairly recently bought a telly and a few other bits on one of them. I've never been late on a payment, never over drawn, on the electrol roll, no CCJs, defaults etc in fact i could clear them all off in a month or two if i wanted to but chose not to, yet my credit score has gone from "poor" to "very poor" in the last month and the bottom 30% of the country even though i've recently been appoved for £10k of car finance which i have decided not to take up.

Now my Bro in law earns roughly the same as i do, has £60k of debt, negative equity on his house and has recently had to reduce and extend all his payments on his loans and credit cards as he cant keep up, yet his credit score is still classed as "good"

 

How the f*ck do they work that out? Which one is the higher risk FFS?!!!

[Minty]

Firstly, there's not such thing as a 'credit rating' as such... you have a credit history and different companies will use it accordingly. Who has stated you are 'Poor' or 'Very poor'? Your bank? That will be based on their own system.

 

Secondly, banks/finance companies' opinion of you is influenced more by profit than risk... if you can make them profit, then they're more interested in lending. Risk does come into it but actually not as much as people think. The amount of money going in to your account is therefore often more important than the the amount going out.

 

All I would suggest at this point is to get a copy of your credit report from one the main companies (only costs £2 online) and go from there.

 

http://www.moneysavingexpert.com/loans/credit-rating-credit-score for lots more info and reading.

[Son of Bob]

The fact is the more you borrow the better your credit rating gets. As long as you're paying it back as you should of course.

[Turkish]

Firstly, there's not such thing as a 'credit rating' as such... you have a credit history and different companies will use it accordingly. Who has stated you are 'Poor' or 'Very poor'? Your bank? That will be based on their own system.

 

Secondly, banks/finance companies' opinion of you is influenced more by profit than risk... if you can make them profit, then they're more interested in lending. Risk does come into it but actually not as much as people think. The amount of money going in to your account is therefore often more important than the the amount going out.

 

All I would suggest at this point is to get a copy of your credit report from one the main companies (only costs £2 online) and go from there.

 

http://www.moneysavingexpert.com/loans/credit-rating-credit-score for lots more info and reading.

 

I signed up to credit expert and experian last month to find out what it was as i was looking at getting car finance, it was credit expert that gave me a credit report of "poor" and then "very poor" and a score.

[Minty]

That might be their opinion, based on I-don't-know-what criteria, but lenders and banks will only look at the content... but what about the actual detail on the report? Any late payments showing? (I know you say you've had none, but that doesn't mean a mistake hasn't been made, which is why it's important to look through the whole report, not just any headline 'score') You need to find out WHY they're saying poor or very poor... read that page on MSE through and go from there.

[Turkish]

That might be their opinion, based on I-don't-know-what criteria, but lenders and banks will only look at the content... but what about the actual detail on the report? Any late payments showing? (I know you say you've had none, but that doesn't mean a mistake hasn't been made, which is why it's important to look through the whole report, not just any headline 'score') You need to find out WHY they're saying poor or very poor... read that page on MSE through and go from there.

 

No late payments at all. Everything is up to date, they gave these reason which are positive

 

You make all your repayments on time and in full - no accounts have been paid late in the past six months

You are on the electoral roll (registered to vote) at your current address

You have made two or fewer applications for credit in the last six months

You don't have any county court judgments and you have not been declared bankrupt in the last six years

 

and this one as negative. As i said, i'm using about 75% of my 3 credit cards credit at the moment. Oustanding balance of them all is £1.8k against a £2.5k limit, which will soon be going up to £3.5k as one of my credit cards has given me a £1k increase which i didn't ask for.

 

You have several credit agreements (excluding mortgages), and the outstanding balance is high

 

That = Very poor credit score apparantly.

[Turkish]

strangely if i apply for 2 or more credit accounts and increase my debt to £10k over the next 6 months, according to Credit experts credit forecast tool my rating will improve to "Fair" Un-f*cking-beleivable!!!

[Minty]

Well I can't pretend to understand it all (I am in a very similar position to yourself) but it could simply be (also like me) that your high level of existing borrowing goes against you.

 

It is probably going to depend on who else you might apply to and what for. For example, I cannot borrow from Lloyds TSB because I have outstanding debt with them which was quite a bit of money. It's all budgeted and paid on time and I have a faultless repayment record, but my net worth to them is too high for anything new, or even a restructuring. However, I was able to borrow with another lender when I needed to a few years ago, because my net worth to them wasn't as bad.

 

If you have a credit card, I would suggest you start using it more, and repaying the balance off in full, for example for the weekly shop or something, as that can help also.

[Barfy]

It could be that as you are currently have a high percentage of your total available credit outstanding, that the calculation of the credit score classifies you as someone not managing their debt too well... One remedy might be to get a new credit card, transfer the balances (preferably at zero or low rates), and repay the balance faster than you are now. Chop up the other cards, but don't close the accounts, so you have higher credit facilities available, but a lower relative borrowing ratio.

 

Up until recently, I had masses of available credit (£30k or so) and balances of about £5 - £10k outstanding and my credit score, according to CreditExpert was apparently superb, and in the top 10%.

 

Though if you are looking at car finance, I wouldn't worry too much as that is very similar to a secured loan, and credit references would just look at your repayment history rather than credit worthiness.

[norwaysaint]

Except for my mortgage (and my house is worth three times what I paid for it) I have no debts. I think buying stuff on credit is just a bad idea. If you can't afford stuff, save up until you can. I have no idea what my credit rating is and I couldn't give a ****.

[Special K]

Except for my mortgage (and my house is worth three times what I paid for it) I have no debts. I think buying stuff on credit is just a bad idea. If you can't afford stuff, save up until you can. I have no idea what my credit rating is and I couldn't give a ****.

 

Even with interest? A pesky little amount that most people seem to omit from their thinking when calculating this sort of thing. If it is, then good on you.

 

IMHO buying on credit cards can be really useful if you square the balance off within a max of 2 months. But too of something can be a bad thing. I'm sure someone said that once?

[Barfy]

Except for my mortgage (and my house is worth three times what I paid for it) I have no debts. I think buying stuff on credit is just a bad idea. If you can't afford stuff, save up until you can. I have no idea what my credit rating is and I couldn't give a ****.

 

It has to be said, you are very lucky then. I would very much like to be in your position, but got into a cycle of debt at a relatively young age, and never really got out of it. I therefore (like many others I imagine) need to worry about credit files. Though like you I currently couldn't give a **** either, but for the complete opposite reason...

[Turkish]

Well I can't pretend to understand it all (I am in a very similar position to yourself) but it could simply be (also like me) that your high level of existing borrowing goes against you.

 

It is probably going to depend on who else you might apply to and what for. For example, I cannot borrow from Lloyds TSB because I have outstanding debt with them which was quite a bit of money. It's all budgeted and paid on time and I have a faultless repayment record, but my net worth to them is too high for anything new, or even a restructuring. However, I was able to borrow with another lender when I needed to a few years ago, because my net worth to them wasn't as bad.

 

If you have a credit card, I would suggest you start using it more, and repaying the balance off in full, for example for the weekly shop or something, as that can help also.

 

I might have to start doing that, i tend to use my credit cards for big purchases, holidays or presents for me or the incumbent and then pay them off over a few months or so rather than £30 here and there and clearing it in full. The balances are quite high at the moment as i've recently bought a new telly plus a few other bits.

[norwaysaint]

It has to be said, you are very lucky then. I would very much like to be in your position, but got into a cycle of debt at a relatively young age, and never really got out of it. I therefore (like many others I imagine) need to worry about credit files. Though like you I currently couldn't give a **** either, but for the complete opposite reason...

 

Yeah, we bought land by the sea and built on it. Got a good deal and fixed building price at a good time. The thing is lots of my neighbours were buying second cars they could scarcely afford, decided they needed new flat screen TVs (in more than one room) even though the old ones still worked and they all had to have Mediterranean holidays every year. Some are now in credit trouble and whine about it.

We saved for years for a second car and only just bought a flat TV now. I'm going on my first ever package holiday to the med this year. Nothing bought on credit at all. We don't even use credit cards. I consider it a duty to my family not to start borrowing money for stuff we can't afford.

[Channon's Sideburns]

I've worked in Financial Services for 16 years...so here's my two-penneth...

 

Firstly, any credit agreements that are classified as 'open' are an area of concern. For example, if you HAD a credit card which you no longer use (let's say you transferred the balance elsewhere and is now zero), you may assume that's the end of it. Not so.

 

If you had a credit limit of £10k on it, then the potential view of the 'new' lender is that you could take that £10k immediately = reduced credit score.

 

The KEY thing is to ensure that unused accounts like that are closed, not just left dormant (i.e with zero balance). The credit card companies won't close the account unless you ask them to.

 

In a similar fashion, if the car finance that you chose not to proceed with is still showing as 'live', then that's what the other lenders see.

 

One mistake people make when asking for credit reports is to miss out one or two addresses in the last six years, when you get asked to provide them by the credit reference agencies. This means that some agreements you may have forgotten about could be held against you.

 

HTH

[pap]

The fact is the more you borrow the better your credit rating gets. As long as you're paying it back as you should of course.

 

I can vouch for that. My missus basically had no credit rating for ages because she'd never borrowed anything.

[Jonnyboy]

I can vouch for that. My missus basically had no credit rating for ages because she'd never borrowed anything.

 

And we wonder why there was a global recession based on debt

[scotty]

I can vouch for that. My missus basically had no credit rating for ages because she'd never borrowed anything.

 

Ive heard that as well. Credit ratings apparently improve the more you borrow on credit cards, its not to do with how trustworthy a person you are, more about what the card companies expect they can make out of you. There was a programme on R4 about this a couple of years ago. If you pay off your card bill every month on time without paying any interest, they look on this as a downside, they want customers that are able to pay off their bills in full but choose not to, they are the people that get better credit ratings.

[Jonnyboy]

Ive heard that as well. Credit ratings apparently improve the more you borrow on credit cards, its not to do with how trustworthy a person you are, more about what the card companies expect they can make out of you. There was a programme on R4 about this a couple of years ago. If you pay off your card bill every month on time without paying any interest, they look on this as a downside, they want customers that are able to pay off their bills in full but choose not to, they are the people that get better credit ratings.

 

So when the international banks threaten naughty UK with downgrading our international credit rating, maybe we should be chuffed?

[scotty]

So when the international banks threaten naughty UK with downgrading our international credit rating, maybe we should be chuffed?

 

Dont ever think they wont be making shedloads out of ireland and portugal Jonny. Higher interest = bigger profits, and we all know how the banks hate those

[hamster]

I understood that multiple applications severest effect your rating.

 

We have also, in the past, had our rating knocked due to previous occupants bad history, also when the kids first discovered HP and knocked a couple of mobile contracts it was us that suffered.

 

Kids eh!

[Weston Super Saint]

Ive heard that as well. Credit ratings apparently improve the more you borrow on credit cards, its not to do with how trustworthy a person you are, more about what the card companies expect they can make out of you. There was a programme on R4 about this a couple of years ago. If you pay off your card bill every month on time without paying any interest, they look on this as a downside, they want customers that are able to pay off their bills in full but choose not to, they are the people that get better credit ratings.

 

Hmmmmm.

 

I have a mortgage which is paid on time in full every month - all £68 of it

 

I have two credit cards, both of which have a zero balance. I only ever use them periodically and only when I have the money in the bank to pay them off when the bill comes through, so they never get any interest off me.

 

I have no loans, and no other debts at all - both cars paid in full in cash.

 

I have the usual phone bills etc all paid every month in full.

 

According to your scenario I should have one of the worst credit ratings, but oddly I have the highest credit rating possible. It seems to be odd how they work these things out, and I guess we'll never find out how they do it!

[Channon's Sideburns]

'Some' credit is better than 'no' credit.

 

After all, if a lender is considering an application from you, if you have no credit agreements, how can they judge your level of risk?

 

Having worked for high street lenders before going independent, their whole plan is to get you on short term credit before consolidating it.

 

When working in Above Bar for a certain extra bank type thingy, they asked us to concentrate on selling credit cards to students, because they knew that a loan would follow 2 years later....there's their ethics, right there.