The ninth in our 'ask the expert' series, which sees Kevin Boon of the Consumer Credit Counselling Service (CCCS) answer a question on credit ratings.
Q. Hey hey, I recently moved home (renting) and decided to take out a small £700 loan for domestic appliances not included in my tenancy. However, I have been rejected for credit at three separate companies now, despite never having taken out a proper loan before. I do have a student loan (£15,000 still owing) and am overdrawn by £2000 but didn't think these would affect my credit rating as I've never missed a payment on debit charge. I am unmarried, live alone, have no credit card bills and have never missed a payment on my direct debits. I have double checked and to the best of my knowledge the last person living in my home didn't have any debt problems either. Why else would I be refused credit? - Ian, Slough
A. Hi Ian and thank you for your message. One of the reasons why you are being rejected could be that you just have not built up enough credit history for the banks to make an informed decision.
Banks use a variety of information to make their decision whether to lend you money, including data held by three companies known as ‘credit reference agencies’: Experian, Equifax and Callcredit.
Credit scoring tries to predict your behaviour. If you have no credit history it is difficult for lenders to do this, so you are more likely to be rejected.
Although you may feel you are the 'ideal' customer because you pay off your bills on time and you have never had a credit card, the credit card companies may think otherwise. The most profitable customers for the banks are those who are always in debt, never default and keep to the minimum payment. So, if you have no credit history or a poor one, it is important to try and build a good one before applying for any credit again.
I have attached a link to the Martin Lewis website ‘moneysavingexpert’ which has some useful information on improving your credit score: http://www.moneysavingexpert.com/loans/credit-rating-credit-score
Having problems with debt?
Every Friday, Kevin Boon of the Consumer Credit Counselling Service will answer your questions and provide expert advice on the best way to deal with debt. Send your questions to firstname.lastname@example.org with 'Money Matters' in the email subject line.
CCCS is a national charity giving independent advice to anyone worried about debt, delivered free of charge by expert counsellors. Based in Leeds, CCCS is able to help people with debt problems wherever they live in the UK, through its free national telephone service (0800 138 1111), ten regional centres and online debt remedy service ( cccs.co.uk/debtremedy).