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Becoming credit-worthy again

 

An editorial

 

We're always telling you to shop around for the best deal on credit cards but what do you do if you end up in the situation where no providers want to lend you money because, for whatever reason, they decide you're too big a risk?

 

Chances are they've conducted a credit check and you've scored poorly, often because of factors that have nothing to do with your actual borrowing habits or your ability to repay.

 

We show you how to find out why you've been turned down for a card and what you can do about it.

 

We all know that if we build up arrears on our bills, companies will think twice before they let us borrow more. But less well known is the fact that there is also a catalogue of less-heinous offences that could also damage our credit records.

 

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Lenders are reluctant to outline exactly what these are, claiming that if they make this information public, it will help fraudsters beat the system.

What we do know, however, is that we all have a credit score which firms turn to when we apply for a financial product.

 

We also know the kinds of things that are considered when we're being credit scored, which provides useful clues on how to improve our ratings.

Every time you apply to borrow money - be it a mortgage, credit card, personal loan or hire purchase agreement, the provider will run a credit search on you.

 

This is to prove you are who you say you are, and to check that you have the means to repay any debt.


To carry out these checks, the company will use a credit-reference agency such as Experian (www.experian.co.uk or 0870 2416212) or Equifax (www.equifax.co.uk).

 

The financial services provider you apply to will allocate a points value to each nugget of information on your record, and add it all up to give you a final credit score - if you then fail to hit the company's target, your application will be rejected.

 

Smoothing out the bumps
If you do have trouble applying for a financial product, the first thing to do is get a copy of your credit record. This should help you work out why you were rejected.

 

One common problem is simply not being on the electoral roll, so if you recently moved and aren't registered, contact your local council.

Another problem worth addressing is whether you have enough credit on your record.

 

If you're new to banking and other financial services then you wont have a record, a situation a lot of students and new immigrants might find themselves in.

 

One way to get round  this is to set up a credit card, make small purchases on it and pay off the balance every month, to establish some sort of history.

 

Perversely, you can also run into trouble if you've had too many credit cards, for example if you change cards every time the introductory rate runs out.

 

Stuart Glendinning, marketing director at internet search tool Moneysupermarket.com, warns: "If you're a serial churner, the chances of being accepted will be reduced."


Beware 'footprints'
If you're not careful, just shopping around for a good deal creates footprints.

 

Difficulties can arise with online mortgage promises (agreements-in-principle); even though you may not end up applying for the loan, the lender will need to run a credit check as it's making a commitment to lend.

 

By doing research and arranging various mortgage promises, it may look like you're being turned down for credit all over the place. So it's worth using a generic calculator rather than an agreement-in-principle tool to work out what you can borrow.

 

Unfortunately, financial services companies aren't the only firms that run credit checks - they are also made by utility firms when you change address. These footprints are less easy to avoid, unless you agree to prepay your bills.

 

You also need to be careful about something known as 'associations'. Neil Munroe, external affairs director at Experian, says: "If there is anybody with the same surname as you, living at your address at the same time, their information will be shown on your credit record."

 

                        

Marital status and family may enhance your credit-worthiness

Settling down
Another problem is the fact that lenders care about all sorts of lifestyle choices that you won't necessarily want to alter simply to improve your credit rating.

 

"What they are looking for is stability," says Glendinning.

 

So factors like how frequently you move or change jobs come into play. Your marital status may also be considered, if the lender sees married couples as more stable than singletons.

 

The ideal borrower is likely to be seen as someone with a mortgage and several credit cards, who has been in the same address for years, stuck with the same bank and been in their job for a long time.

 

While you may think it's beneficial to move from one solid job to another every year in order to improve your career prospects, a lender may see it as a worrying sign of instability.

 

Also, although lenders are not allowed to turn down an application because of your address - this was outlawed in the 1970s - where you live still matters.

 

"Areas with a high homeownership ratio do better than areas with lots of student bedsits or high levels of defaults and County Court Judgements (CCJs)," Glendinning explains.

 

The good news, if you do have a problem with your rating, is that it's possible to put it right. CCJs paid within a month of issue cannot appear on your record.

 

If you have any that weren't sorted out so quickly, you can make sure they are satisfied and pay £10 for a certificate of satisfaction to ensure this appears on your record.

 

Fortunately, blips don't stay on your record forever - details of missed payments only last for two years, as long as the debt has been repaid, while evidence of CCJs and bankruptcies disappear after six years.

 

With thanks to Interactive Investor, where this piece first appeared.

 

Editor's note: Please always seek experts' opinion before making important financial decisions

 

E-mail comments about this article to comments@thenewblackmagazine.com

 

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