Why have I got a rotten credit score?
I am in the fortunate position of being able to pay off credit card bills by direct debit. So I never miss a bill, and don’t have to pay any interest any more.
Credit cards are still charging extremely high interest rates if you don’t pay off the whole amount each month. I don’t know how they have the cheek to charge as much as they do with the bank base rate at an historic low. If you have debt, it’s possible those interest rates will be even higher, especially if you have taken out a card whilst already carrying debt.
One of the things that any lender will do is to check your credit score before offering you a loan, credit card or whatever. They use this information, and any other financial information they have about you, in their decision making process to decide just how much interest they will charge you as an individual, and yes, they vary it, person by person, in a not always logical way either.
Mike and I have a successful business and several workplace pensions between us, together, giving us a very good income. And yet. If either of us applied for a new credit card now, we may not get a very good interest rate offered as my credit score on CallCredit isn’t great. Don’t know about Mike’s, haven’t looked at his, just mine, but it’s probably the same. There are 3 places that store information about you, Equifax, Experian and CallCredit. My score is Poor on CallCredit whereas Equifax gives me a score that is Excellent. Just goes to show you need to look at all the credit reference agencies as they all use a different combination of financial records.
What does that mean?
An individuals credit rating assesses credit worthiness. This is based primarily upon your history of borrowing and repayment. So, the better your credit score the lower your credit risk and the more likely you are to be successful in any application for credit.
I don’t default on paying bills, and none are showing on my credit record. What on earth is going on? I think that my score on CallCredit may possibly reflect borrowing carried by the business, which is held in our individual names, not via a limited company. This probably means that they I think I already have too much borrowing, even though it is within a business. This is just a guess, no reason is stated!
Fortunately, our business is at the stage where we are actively reducing business loans and soon, we won’t have much, if any. Hopefully that will improve my credit score!
If you have a couple of credit cards maxed out, perhaps a personal loan and a loan for the car, you may be in a similar position. When you come to apply for a loan for say, kitchen improvements, deferring the interest for a year or something, depending on which credit reference agency your lender consults, you might find you are being offered a much higher interest rate than you were expecting.
What can I do about it?
Providers of any kind of credit are just trying to find out the likelihood of getting the money paid back to them from whatever loan they provide. So the better you can look to them, the better the deals you will be able to find. If you want to transfer to a 0% credit card, for instance, to get the interest under control while you pay it down, you will need a half decent score.
There are many common sense, and simple, things you can do to improve a credit score. Paying down loans, as I am doing, is one. For a clear guide to many other actions you can take, have a look at the advice on Clear Score, and maybe signup to their, free, credit score report, to see where you stand right now. Around 55% of lenders use Experian, which is where Clear Score get their data from, so it’s a useful source of information about your credit score. It’s a good idea to keep checking it every now and then too. Having had a look round their site, I found several interesting things on their blog pages, well worth a visit.