Two years ago I had a very downbeat conversation with one of my clients – let’s call him Arlie. He was having a very difficult time financially. With a wife, three children, and very high financial commitments, things had started to get on top of him.
After some research it turned out that he was paying a comparatively high interest rate on his mortgage, but when he tried to switch mortgages to reduce his monthly payments he was turned down by the new lender.
This awful Catch 22 trap is all too common. A lot of people could save hundreds of pounds on their mortgage payments, but they are unable to change lenders because their ‘Credit Report’ is poor.
Arlie told me last month that he had taken his ‘Credit Score’ from under 400 to over 900 in two years. He also sounded like a different person!
What is a ‘Credit Report’?
If you have ever taken out any sort of credit, then there will be a ‘Credit Report’ on file with a ‘credit reference agency’ with your name on it, which shows a history of your credit accounts and a record of your repayments.
This all sounds terribly sinister and Big Brother like, but it is the way that companies like mortgage lenders, credit cards and mobile phones check you out when you apply to them for their services.
Make your Credit Report shine
Arlie was furious that he had been turned down for a mortgage. He had not missed a single payment on his existing mortgage, and therefore couldn’t understand why a different lender would not take him on (especially as the payments were £500 lower than his existing ones).
I explained to him that your Credit Report is something that must be nurtured. Leave it alone, and it can wither and die.
So we put together a Boot Camp plan to make his Credit Report shine again:
- Get a copy of your Credit Report. Checking your own report will not affect your credit score.
To get hold of a copy, go to the websites of the credit reference agencies (Equifax, Experian and Callcredit are the ones most commonly used in the UK). It can cost as little as £2 to see your report, and several companies offer free trial periods (if you do not wish to continue with your subscription, don’t forget to cancel it after the end of the trial period!)
Go through your report with a fine tooth comb. If any of the entries seem incorrect you need to bring it up with the Credit Agency in question.
Obvious things to look out for are any fraudulent activities, or an ex-spouse still being linked to you on the report.
- Take extra care to make payments on time. It is so so easy to go on holiday, get back and realise that you have missed a credit card payment for example – a late payment is registered on your report, and something as minor as this can affect your ability to get accepted for credit in the future.
- If you have missed payments in the past, and they show up on your report – it is worth letting the credit agency know of any extenuating circumstances that were beyond your control – redundancy or illness for example.
- Check that you are listed on the Electoral Roll. This is how credit companies confirm your identity. Applicants for credit are frequently turned down if they are not registered. A quick call to your local council will answer this one.
- Spring clean your accounts. If you have any credit cards that you never use, close them, as unused credit can damage your score.
- Do not make any additional applications for credit until your score has improved.
Don’t wait – polish it now
As you can see from Arlie’s case, it can take a long time to get your Credit Score up to scratch, so don’t wait until the last minute, start working on it now.
Henrietta Oxlade is an Independent Financial Planner with Radcliffe & Newlands and MyFamilyClub’s in-house finance sage! She has been advising individual clients since March 1988, which is why many of her clients consider her part of the family. If you want to contact Henrietta, email us on firstname.lastname@example.org and we’ll put you in touch.