In my last blog I promised to talk next about improving your credit rating and providing some useful hints and tips.
In your very first steps to becoming involved in property it can be a daunting prospect knowing exactly where to start. Knowing your credit report and the financing possibilities for your own situation is definitely one of the first steps. I feel that without knowing this information you can't really begin to create a plan for how you're going to achieve your end goal.
The main 3 credit reference agencies in the UK are: Experian, Eqifax and callcredit.
These agencies gather information about your credit and payment history and compile it into a credit report along with a credit score to show lenders how reliable you would be at paying them back. Lenders will request this information from one or more of the agencies whenever you make an application for credit, and your credit report/score will then help them decide whether they would like to lend to you or not. Different lenders have different criteria so it's worth, if possible, finding out what their criteria is prior to making an application (but they don't always tell you).
These agencies gather information about your credit and payment history and compile it into a credit report along with a credit score to show lenders how reliable you would be at paying them back. Lenders will request this information from one or more of the agencies whenever you make an application for credit, and your credit report/score will then help them decide whether they would like to lend to you or not. Different lenders have different criteria so it's worth, if possible, finding out what their criteria is prior to making an application (but they don't always tell you).
In my personal opinion I feel that the best credit report is www.checkmyfile.com as it is the UK's only multi agency credit report and it is free for 30 days and then £14.99 a month thereafter, but you can cancel at any time. If you are about to put through a mortgage application or for a mortgage in principle I would advise keeping access to your report until you have an application accepted, as your credit report is generated each month and it is useful information for you and your mortgage advisor/broker.
There are several free credit report websites such as Noddle, Creditwise (by capitalone) or totally money but I find these less reliable, less comprehensive and less timely (not always up to date). You can also get a free trial from some of the credit reference agencies websites themselves but they are specific to them.
There are several free credit report websites such as Noddle, Creditwise (by capitalone) or totally money but I find these less reliable, less comprehensive and less timely (not always up to date). You can also get a free trial from some of the credit reference agencies websites themselves but they are specific to them.
Once you have a copy of your credit report/s this will give you a clearer understanding of your financing options going forward. The main points that can adversely affect your credit report and score are: not having had credit at all in the past, missed payments within the last 6 months, multiple credit applications in the last 3 to 6 months, County Court judgements (CCJ's) within the last 6 years, defaults within the last 6 years or using 70% or above of your available credit.
It is crazy to think that having had no credit would be bad, but the reason for this is that you have no track record for a lender to rely on in order to know that you will pay them back. If this is the case for you and you are hoping to get a mortgage in the near future, I would advise applying for a credit building card such as Capital One, Vanquis or Aqua to start using it each month to buy general things (that you would normally buy) but then very importantly pay it off in full at the end of each month, to show that you are reliable and can make full regular payments. DO NOT BE TEMPTED TO BUY OTHER UNNECESSARY THINGS ON IT.
If on the other hand you have one or more of the main points above that is adversely affecting your credit, then I would advise trying to change this prior to making a mortgage application or a financing application (be patient! Approx 6 months).
You may have to think smarter such as:
- applying for 0% balance transfer credit cards or lower percentage credit cards than you currently have, so you can do a balance transfer from higher interest credit cards to those and then start paying back some of the balance you owe.
- paying off your food allowance for the month on your credit card on payday, but then using only that amount again for the months food (so it looks as though you're paying more than the minimum payment and possibly bringing the credit amount below the 70% threshold).
- paying one credit card off with another credit card that has a later payment date (but they won't all enable you do this) *tip - capital one let's you use it to pay off other cards*
- moving money from one bank account that has a minimum monthly deposit around many other bank accounts that have a minimum monthly deposit automatically e.g standing orders from one to the other to the other (for credit purposes)
- calling up each of your credit card companies and asking if they can give you a better offer or a lower interest rate (which they usually can).
- or in the dreaded event that you miss a payment, calling your credit card company and asking them nicely to please refund you the charges etc. Usually if you bring the balance back under the limit within 2 weeks or prior to the end of the month your credit report will show as not having gone over the limit or not having had a missed payment.
You may have to think smarter such as:
- applying for 0% balance transfer credit cards or lower percentage credit cards than you currently have, so you can do a balance transfer from higher interest credit cards to those and then start paying back some of the balance you owe.
- paying off your food allowance for the month on your credit card on payday, but then using only that amount again for the months food (so it looks as though you're paying more than the minimum payment and possibly bringing the credit amount below the 70% threshold).
- paying one credit card off with another credit card that has a later payment date (but they won't all enable you do this) *tip - capital one let's you use it to pay off other cards*
- moving money from one bank account that has a minimum monthly deposit around many other bank accounts that have a minimum monthly deposit automatically e.g standing orders from one to the other to the other (for credit purposes)
- calling up each of your credit card companies and asking if they can give you a better offer or a lower interest rate (which they usually can).
- or in the dreaded event that you miss a payment, calling your credit card company and asking them nicely to please refund you the charges etc. Usually if you bring the balance back under the limit within 2 weeks or prior to the end of the month your credit report will show as not having gone over the limit or not having had a missed payment.
Unfortunately for things showing on your report such as missed payments within the last 6 months or multiple credit applications in the last 3 months, you will be better waiting for the time to elapse before making a mortgage application. Having a county court judgement or a default within the last 6 years will not always mean that you can't get a mortgage, it may just mean that you will get a worser deal or have to pay a higher interest rate than somebody who doesn't have these; it will all depend on the lender as to what their criteria is.
The main thing to remember is, if you really are serious about getting yourself out of debt, getting yourself on the property ladder or turning property into a career then you need to be focused and get your credit report in order. You also need to really work on your bad habits and not get into any more 'bad debt', so that you are able to open up the possibilities in the future of 'good debt' so you can use this opportunity to make money.
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