Keep your credit rating safe over the hols
Too much online shopping could result in black marks against your name, thanks to anti-fraud measures
Sunday 19 December 2010
In the rush to snap up the right gift, you could be damaging your credit rating.
Or if you're tempted to splash out in the post-Christmas sales, you could fall foul of new fraud prevention tactics by online stores.
Buying presents online can mean triggering a credit check, which will leave a footprint on your file. The more credit checks that are recorded, the more of a risk you will be perceived to be and one or two footprints can quickly become seen as a black mark.
Lenders will simply presume you've been trying to get lots of credit and be much more likely to turn you down for a loan.
The practice could cause problems down the line with you either being turned down for credit, or charged a much higher rate of interest by lenders which use risk-based pricing.
The country's fifth most popular retail website, Next.co.uk, admitted last week that it carries out credit checks on new customers. Industry insiders suggest the firm isn't alone, with many other online retailers beginning to adopt the practice.
The problem is fraud. With more than 32 million of us shopping online in the past year, according to the UK Cards Association, fraud is growing at a massive rate.
It's forcing more and more online shops to introduce even greater prevention methods to fight the growing army of fraudsters.
For crooks who get access to someone else's credit card details, for instance, it's fairly simple to go online and order goods to be delivered to a preplanned fake address, often with instructions to leave items under a bush or even by the front door. By the time the lender or cardholder has spotted that a fraudulent transaction has taken place, the thieves will have picked up their goods and be long gone.
Doing a credit check when a potential fraudster comes to a site will throw up the fact that the delivery address is different from the address registered for the credit card. In most cases, the retailer will then turn down the purchase, thwarting the fraudster's actions. But the practice can also catch innocent spenders out.
"Doing a full credit check on someone as a means of preventing fraud is absolutely insane," says James Daley, the editor of Which? Money. "The over-the-top action can leave people struggling to get credit at a decent price in the future."
Lenders use different methods to work out our credit scores, but a high number of credit checks will be a red alert for all. Keeping to tried and trusted retailers should be one way to avoid triggering new credit checks. Firms that you've already used will have your details on file with no need for further checking. And don't be tempted to apply for new credit deals to pay for Christmas presents or New Year bargains.
Many retailers offer interest-free credit which can look attractive but turn into a nightmare if you're turned down. Anecdotal evidence suggests that unscrupulous shops offer interest-free deals with little intention of giving it, hoping instead that you will be embarrassed into taking expensive in-store credit.
They will care little about the black mark left on your credit file. "With Christmas being an expensive time of year, people may feel the need to pay for it on credit," says Gill Wrigley, the debt solutions director at RSM Tenon. "If someone has applied for numerous credit cards to pay for the festive season, that can affect their credit rating, especially if any of the applications have been declined."
Ms Wrigley's advice to those worried about damaging their credit rating is stark. "Spend within your means," she says. "Your credit score also depends on whether or not you pay your bills on time. Therefore, another good way to make sure you don't affect your credit rating is to make sure you pay all your bills within a reasonable time frame."
If you're a victim it could also hit your credit rating. If there are fraudulent transactions on your account they could end up on your file. Once they've been identified as fraudulent, your bank or card provider should make your losses good. But if there is a delay in things being sorted out and you haven't paid the bill in the belief that it will be repaid by your lender, a note could be sent to your credit file. These are sent every time you miss a payment or are late in repaying bills as they show that you can sometimes be unreliable. Two or more such notes will make lenders think again about giving you credit in the future. If you are a fraud victim, ask your bank to make sure a default note is not sent to your credit file.
Neil Munroe, the external affairs director for Equifax, suggests that setting a budget is the best way to avoid getting into trouble paying bills, which would have a negative affect on a credit rating.
"People need to ensure that they will be able to afford to pay back any credit they may use over Christmas," he says. "One late payment, if it is just one late payment on just one account, should not impact too much on someone's ability to get credit in the future. However, if a history of late payments starts to build up over various accounts held, this could affect their credit rating. In the past few years, lenders have tightened their criteria for extending credit. They will be looking for signs that an individual may struggle to repay new credit. In some cases, even one late payment may have an effect on the deal offered."
Kevin Mountford, the head of banking and credit cards at Moneysupermaket.com, says that the first thing to do is to check your file. "You have a vested interested in keeping your details up to date," he points out. "If there is anything wrong, it is up to you to correct it, and keep it right."
He suggests keeping a regular check, say once a year, and ensuring your profile is fairly stable. "Such things as staying with a bank for a fair amount of time boost your rating, so don't switch all the time."
For that reason, if you switch accounts for a better deal, it's an idea to keep the old account open if you plan to apply for credit. Being with the same bank for 20 years will suggest you're a lot more reliable to a credit provider than if you've been there only a matter of months.
How to check your credit rating
There are three credit reference agencies: Callcredit, Equifax and Experian. For £2 they must send you details of your full statutory credit report. Check all three as they may hold different information – and any of it could be incorrect. You can apply online or by post, but you'll need to provide your name and any past names, date of birth and details of all the addresses you've lived at over the past six years, and any people you have financial associations with, such as a shared bank account or mortgage.
Check your file carefully. If you spot a mistake, write to the credit agency concerned and ask for it to be corrected immediately Explain why it's wrong, and include any evidence you have. The agency has 28 days to act, and the relevant detail in your credit report should be marked as "disputed" in the meantime. If the agency doesn't amend your records, you have a legal right to send it a notice of correction (up to 200 words), which will be added to your file.
Callcredit: 0113 242 4747
Equifax 0844 335 0550
Experian 0844 481 8000
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