How to be the perfect customer
The latest tips on improving your credit rating from Chiara Cavaglieri and Julian Knight
As far as interest rates go, borrowers are enjoying a golden summer. Mortgage lenders, buoyed by £80bn of Bank of England funding for lending cash, are competing hard for business. As a result, rates on two-year fixed mortgages have dipped below 2 per cent, making them cheaper than inflation. Meanwhile, personal loan rates have finally gone below the levels seen prior to the global financial crisis.
But although banks may be lending and competing again they are still being picky over who they open their coffers to. The latest stats show that seven million credit applications were turned down in the last year and personal loans had 1.6 million applications rejected, followed by 1.2 million credit card applications refused in a single year, according to the Debt Advisory Centre. A further nine million people didn't even bother processing their applications for fear they would be declined. Younger people seem particularly worried about their credit rating with 25 per cent of 18- to 24-year-olds surveyed saying they avoided applying for credit, compared to just 11 per cent of the over-55s.
It has never been so important to understand how the credit system works and, more importantly, how you can beat it.
Every time you open a new form of credit it leaves an electronic footprint on your record. If you apply and subsequently get turned down this also leaves a footprint which could make it even harder to be accepted in the future. The problems don't end there either, with an estimated 7.3 million people with a poor credit rating struggling to open a bank account, take out a mobile phone contract or rental agreement, buy home and car insurance, or even get a job. "Credit's not the only thing that depends on credit ratings. As our research clearly shows, the way you've handled your finances in the past can have a much bigger impact on your life than you might expect," says Ian Williams of the Debt Advisory Centre. "Everyone knows a poor credit rating can stop you getting a mortgage, for example, but what does someone do if renting isn't an option either?"
Lenders score you individually based on their own criteria for the "perfect customer". This varies from lender to lender so one rejection may simply be because you don't suit their particular customer profile. Several rejections are a concern, however, and this usually points to a poor credit score. The higher your credit score, the more likely you are to get accepted and many lenders also reserve their cheapest deals for people with high scores.
Fortunately, bad credit doesn't last forever and there are practical steps you can take to improve your rating, starting with getting copies of what credit reference agencies say about you. There are three agencies - Callcredit, Experian and Equifax - and you are entitled to look at your file from each for £2, although Experian and Equifax both offer free trials for 30 days and you can check your credit record with Callcredit free through www.noddle.co.uk.
"Given the current economic environment it's now more important than ever for consumers to take greater control of their finances. Having access to your credit report will help consumers gain a better understanding of their credit history and how to improve it," says Tom Ilube, founder of credit checking specialists Noddle.
Minor mistakes such as forgetting to cancel old credit cards and failing to register on the electoral roll will have an impact. Lines of credit still appear on your file if you don't terminate them and lenders may be concerned that you could max these out. You may also have an old address for a mobile contract that you don't use but haven't cancelled, or a financial link to an ex-partner. If you are divorced or separated, remove your ex-partner's details from any joint accounts or loans as their credit history can affect your rating.
If anything is amiss get in touch with the credit reference agency to get it amended. You also need to be vigilant for any products you haven't taken out, in case of ID fraud.
If you want to improve your credit score pay bills on time and avoid a high balance on your credit card. Space applications for credit carefully and only apply when you need it as applying for more than four forms of credit in a year can lower your score. Even with existing cards that you do use, if you don't need the full credit limit get it reduced as this may make you a better risk when you apply for another form of credit. Lenders are looking for stability so use a landline instead of a mobile number on applications. Long-term employment history, sticking with the same bank and living in one place for a long time (preferably owned rather than rented) will all help.
Check your credit report annually at least and use comparison websites such as Moneysupermarket.com and Confused.com to check whether you are likely to get a particular card without placing a "footprint" on your credit report.
- 1 Fifty Shades of Grey trailer: First look at Jamie Dornan as Christian Grey
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 50 books for students to read this summer: From Ernest Hemingway to Gillian Flynn
- 4 Students offered grants if they tweet pro-Israeli propaganda
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
£18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...
£20000 - £25000 per annum + OTE £40,000: SThree: Computer Futures has been est...
£300 - £350 per day: Orgtel: Job Title: Business Analyst Rate: £300 - £350 per...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar