The Smart Wallet: November 2014

At the risk of sounding like a cheesy TV commercial, I am going to ask you "Have you been refused credit?". If so, and even if you haven't, then this guide is for you. Why pay someone else to do what you should be doing anyway. Check your credit score and learn how to bring it back and keep it healthy.

Before we start, if you have been rejected for a credit application recently (credit card, bank account, insurance, mobile phone contract etc) - stop applying for more. You need to take a step back and figure out why you have been rejected. Further applications, could have a spiraling negative effect on your credit report. So follow these steps improve your rating.

Step 1 - Access and check your report

This is basic. You can't fight blind. Get access to your credit report. There are a few major credit report agencies in the UK, and most places will check with one of these:

Experian
Equifax
CallCredit

It usually costs to check your report, but is relatively cheap (£10 a month, with a 30 day free trial). If your savvy, you can go through a cashback site, like TopCashBack or Quidco and get paid to take out a 30 day trial of your report.

Obviously, being a Smart-Wallet reader, you will itemise the date in your calendar/diary and cancel the free trial at no cost to you - thereby earning some cashback and effectively getting paid to check your credit history. Noddle, also offers a free credit report, which is largely the same as equifax/experian, so you can use that too.

Step 2 - You need to start somewhere

If your relatively young, and have no credit history yet. This could be a reason to get rejected. Straight out of university, if your applying for a high risk credit card, loan or car finance - the lender does not have enough information on you to give you a loan. Your an unknown risk.

Start with a basic credit card, even if its the one offered by your bank account provider (although, I would recommend either capital one or aqua - as they provide 0.5% cashback), and use it lightly for your necessary expenses, spend a few quid on it monthly and then have a direct debit clear up that expenditure. Over the next few months, your credit report will have activity, and it will show you to be a responsible borrower.

Step 3 - Too much credit is bad

On the other end of the scale, having far too much credit can hurt you too. If you have 9 credit cards, the lender may be thinking, "what if he/she spends on them all and cannot pay off the 10th card?" - in which case you might get rejected. If you have some old credit cards, close them (don't just destroy the card, phone the lender and cancel the credit agreement). Same for store cards, but why you would get store cards in the first place, is beyond my understanding.

Step 4 - Get errors amended

If you spot any glaring mistakes in your report (late payments or incorrect address or anything that is untrue) - write/email the agency (write to as many agencies as you can), with evidence if possible and get a note put in your file. This should somewhat mitigate the issue in about 30 days.

Step 5 - Stability

If you have a permanent home address, that is synchronised accross your bank accounts, passport, driving license and credit cards - it looks like you are stable. If you have old addresses on file for some, it may look like you change homes too often or are unstable. This is a risk (i.e. risk of fleeing without payment) and might get you rejected. Keep your details up to date. Check with your credit cards and loans, banks, driving license, and so on.

Other things that help are home ownership as opposed to renting or living with parents (harder to flee, if you have a £150k brick and mortar investment) and a landline number on your applications as opposed to a mobile (provide both if you can).

Step 6 - Register to vote

On the same note, get yourself on the electoral register - this is your primary source of proof of address. Check with your local council office for details on how to do so, if you are not already registered.

Step 7 - Space and time

Too many applications in too short a space of time, is trouble. It makes you look desperate for credit, which brings into question your motives. "Why do you need 5 credit card applications in 3 months? How will you use them and how will you pay them back?" - its a recipe for rejection. Multiple rejections in a short space of time look bad too. "It begs the question, why are you getting rejected so much?" Apply once, then give it a few months. Most credit lenders agree that 6 months should be sufficient.

Step 8 - Time and money

Late payments are bad. Defaults are worse. Do not do it.
Rule of thumb for credit cards is to use them as a debit card. Use them for benefits (cashback/voucher/etc), then pay off with a direct debit set to clear the whole bill at the end of the month. Do not spend money you do not have. £5 late now, could be all the difference to that loan application 3 years later.

Step 9 - One for all, all for one.

This will not apply to everyone, but joint financial accounts/loans etc tie you in with the other persons credit report. If you have an ex, or a partner whom you no longer associate with, check that you no longer have any accounts open that link you together. If the other person defaults, it affects you.

Step 10 - Check, then recheck

Using a service like noddle means you do not need to pay to check your credit history (or most of it), so check once every year at least and ensure nothing new has occurred that makes you look bad. If something has gone wrong, for example, a default due to circumstances beyond your control, your best recourse, is to continue to be a good borrower, and over time your report will heal.

That's it for now. It's not difficult, but by abiding to simple rules like these, you can be a better borrower and open doors to bigger and better financial tools for yourself in the future.

The Smart Wallet

Saturday, 15 November 2014

10 Steps to Improve Your Credit Rating