How Do You Score?

Five reasons why your credit score could come as a surprise.

Borrowing is so much a part of twenty-first century life that being declined for a loan, credit card or mortgage can come as a shock, especially if your finances are well under control. Here, we explain what could be counting against you – and what you can do about it.

There’s a score that can affect your life just as much as your bank balance or your tax code. It’s the credit score that lenders calculate when you apply for a loan, mortgage or credit card and it represents the risk they take in lending to you – because there’s always a risk that a customer might not repay what they borrow.

Lenders use the information you give them on your application form plus details on your credit report – the personal financial record that shows what credit you have taken out in the recent past, your repayment history, whether you have any court judgments or have been bankrupt and whether you are registered to vote.

Each item of information is allocated a value. Generally, the higher your score, the easier you will find it to borrow. So if you’re comfortably off and managing well, why would a lender turn you down?

1. You haven’t borrowed enough in the past
   You’d think lenders would love a customer with no debts – but it isn't as simple as that. They rely on the details in your credit report to show them that you make repayments on time and are a reliable person. If you have no track record, they cannot tell how you might behave in future and could mark you down because they have no evidence of being someone who manages credit well.
   If you fear this could happen to you, ensure that the lender has full information about your situation – for example, that you own your home and have paid off your mortgage, or that you use a debit card because you live within your means. They can then make checks and come to a rational decision.
   


2. You don’t fit the profile for that particular lender or the type of credit you asked for
   Confusingly, you don't have a single credit score. Different lenders use different ways to work out their scores and sometimes one lender will even use different calculations for different products. They target specific groups of people and you may not fit their template.
   
   Ideally, you should do your research before you apply and identify lenders who want to deal with people like you and what product they have for you – for example, for home owners, students, older people and so on. The personal finance pages in newspapers, specialist magazines and websites will help.
   


3. There are too many recent searches on your credit report
   Each time you apply for credit, you will give permission for the lender to search – look at the information on – your credit report. This search leaves a record of the check that you and other lenders can see. If you apply to multiple lenders in a short space of time, your credit report may give the impression that you are taking on more credit than you can afford. Future lenders can interpret this as meaning that you are desperate for money, overextended or even that a fraudster is using your identity to get lots of credit, fast.
   

   Make sure that when you approach lenders for information about their products, they don't think you are making an application. Always explain that you want details, or a quote, but that you haven’t yet decided to apply.

   
   

   If you think there are searches on your credit report that shouldn’t be there, contact the lenders involved, explain that you were only looking for information and ask them to amend your credit report.

   
   


4. You had problems years ago
   Today, you’re financially fit – but perhaps things haven’t always been so good. If you have missed credit repayments in the past, a record of these arrears can stay on your credit report for up to 36 months. With a court judgment, the evidence is there for six years. Information about a bankruptcy stays on record for at least six years and a bankruptcy restrictions order can remain there for as long as 15 years. Lenders see these and mark you down when scoring your credit application, because they fear you may not honour your obligations to them if you have failed with others in the past.
   

   Don't panic – you may be able to take remedial action. You can ask to add an explanation of the circumstances surrounding any problems that caused adverse information to be added to your credit report. For example, you might have missed a few repayments because of illness or an accident. The credit reference agency will help you add a note explaining what happened and why things are different now.

   
   


5. You aren’t registered to vote
   

   Lenders use local electoral registers to check that you are who you say you are and live where you say you live. If they don't find your name at your address, they may need to make further checks or can even turn you down.

   
   

The solution is simple: register at once and ensure that you have been taken off the electoral roll at any previous addresses.

What next?

If you want to improve your credit rating, your first stop should be your credit report and you can get that from Experian. You can view your report as often as you like, ask for help in adding explanations and find advice and links to organisations that may be able to help you.

Once you have registered to view your Experian credit report online, you will be able to order your National Credit Score for just £4.99. This is based purely on information in your Experian credit report, so it will not be exactly the same as a credit score calculated by a lender, but it will give you a good idea of how lenders may view your credit report information when they are making a decision.

To check your credit report for free today visit www.experian.co.uk

Credit history or credit report

Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score.

When a customer fills out an application for credit from a bank, store or credit card Company, their information is forwarded to a credit bureau, along with constant updates on the status of their credit accounts, address or any other changes you may have made since the last time they applied for any credit.

This information is used by lenders such as credit card companies to determine an individual's or entity's credit worthiness; that is, determining an individual's or entity's means and willingness to repay indebtedness. This helps determine whether to extend credit, and on what terms.

Determining credit rating

Credit ratings are determined differently in each country, but the factors are similar, and may include:

• Payment record - a record of bills being paid overdue will negatively affect the credit rating.


• Control of debt - Lenders wants to see that clients are not living beyond their means. Experts estimate that non-mortgage credit payments each month should not exceed more than 15 percent of your after tax income.


• Signs of responsibility and stability - Lenders perceive things such as longevity in client’s home and job (at least two years) as signs of stability. Having a respected profession can improve a credit rating.


• Re-Aging - Through re-aging, a credit history is re-written and you are given a fresh start on that particular account. This can dramatically improve the credit score. In 2000 the Federal Financial Institutions Examination Council (FFEIC) clarified guidelines on re-aging accounts for delinquent borrowers.


• Credit inquiries – An inquiry is a notation on a credit history file. There are several kinds of notations that may or may not have an adverse effect on the credit score. Soft pulls don't affect the credit score and are characteristic of the following examples:



A credit bureau may sell your contact information to an advertiser purchasing a list of people with similar characteristics, like homeowners with excellent credit. A creditor can check your credit periodically. Or, a credit counseling agency, with your permission, can pull your credit report with no adverse action. Each of the preceding examples are commonly referred to as a "soft" credit pull.




Hard inquiries from lenders directly affect your credit score. Keeping credit inquiries to a minimum can help your credit rating. A lender may perceive many inquiries on your report as a signal that you are looking for loans and will possibly consider you a poor credit risk. To keep your credit rating good, try not to let companies access your history unnecessarily.



• Cards you don't use - Although it is believed that having too many credit cards can have an adverse effect on a credit score, closing lines of credit can not improve the score and may even hurt it. The credit rating formula looks at the difference between the amount of credit you have and the amount being used, so reducing the total credit can make the balance carried seem larger and take points off the score.
  

Understanding credit reports and scores

The Government of Canada offers a free publication called Understanding Your Credit Report and Score. This publication provides sample credit report and credit score documents with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online at www.fcac.gc.ca, the site of the Financial Consumer Agency of Canada. Paper copies can also be ordered at no charge for residents of Canada.

Credit Cards type

Types of credit card

Looking to get a credit card? Before you fill out a credit card application, you need to decide what type of credit card will work best for your specific situation. Here I am providing the listing from which you can choose.

Standard Credit Cards

• Balance Transfer Credit Cards


• Low Interest Credit Cards

Credit Cards with Rewards Programs

• Airline Miles Credit Cards


• Cash Back Credit Cards


• Rewards Credit Cards

Credit Cards for Bad Credit

• Secured Credit Cards


• Prepaid Debit Cards

Specialty Credit Cards

• Business Credit Cards


• Student Credit Cards

Standard Credit Cards

Standard credit cards are the most typical type of credit cards. These are unsecured credit cards that are readily available from most banks and financial groups.

Balance Transfer Credit Cards

Balance Transfer Credit Cards are designed to allow consumers to transfer a higher interest credit card balance onto a credit card with a lower interest rate, thus saving them money in interest charges. For example, if you transfer a balance to a credit card with a low introductory APR of 0%, the APR for this balance will typically stay at this 0% interest level for a specified period of time, thus potentially saving the consumer hundreds of dollars in interest charges. The terms of balance transfer credit cards can vary between offers, so be sure to thoroughly read the terms and conditions for each specific card.

Low Interest Credit Cards

Low Interest Credit Cards offer either a low introductory APR that changes to a higher rate after a certain period of time or a low fixed rate APR. For example, you may get an introductory APR credit card with an interest rate of 5% for the first six months and 10% thereafter. Then, for the first six months, any purchases or balances you carry will be only charged a 5% annual interest rate. However, any new purchases or balances that carry over after the six-month period will now be subject to a 10% APR.

Many people take advantage introductory APRs to make larger purchases, so that they can take several months to pay them off. Low APR Credit Cards can help save consumers a lot of money on interest charges.

Credit Cards with Rewards Programs

Credit Cards with Rewards Programs usually "reward" the card holder incentives, rebates and even cashback rewards for purchases they make on their credit card. You can get additional airline miles, cashback rewards or discounts on merchandise for each dollar charged on such a card. Rewards Cards usually require better than average credit for approval.

Airline Mile Credit Cards

Put simply, airline mile credit cards or frequent flyer credit cards give you airline miles credits (or frequent flyer miles) whenever you use your card. Typically, you as the cardholder accumulate "points" based on the dollar amount of your credit card purchases over a period of time. Based on a predetermined point level, you can then redeem those points for airline travel (much like frequent flyer miles).

Cash Back Credit Cards

Cash back credit cards give you cash rewards for making purchases with the card. The more the card is used, the more cash rewards you usually get. Most cash back rates are around 1% of your total purchases, excluding interest and finance charges. However, some cards offer a higher cashback percentage with increased usage while still others offer a higher cash back percentage at select merchants or for particular types of purchases. Since cash back programs are costly to the credit card companies, some cash back credit cards also have an annual fee, which can vary from $50 to $100. This type of card is particularly good for people who are faithful about paying off their balances each month. If used appropriately a cash back credit card can earn the cardholder a significant amount of money over time.

Reward Credit Cards

Reward credit cards are similar to cash back cards in that you can accumulate points towards a reward structure, which is based on how much you use the card over a period of time. Credit cards offer different reward programs and promotional offers often change, so be sure to thoroughly look over the card’s terms and conditions of each specific card before applying.

Bad Credit and/or Credit Repair

Credit can easily go from good to bad with poor judgment, mismanagement of credit cards or simply a change in job or financial situation. This does not mean you cannot get a credit card. There are several options available for people who have had bad credit in the past and for those who are currently trying to repair their credit.

Depending on your specific situation, debt consolidation, use of introductory APRs on balance transfers or other options may be the best choice. However, if you still need credit or want to start repairing your credit by proof of action, there are several credit cards designed to help "rebuild" poor credit histories.

Secured Credit Cards

Secured credit cards require collateral for approval. With secured credit cards, a security deposit of a predetermined amount is needed in order to secure the credit card. Generally, the security deposit needs to be of equal or greater value to the credit amount. Collateral can come in the form of a car, a boat, jewelry, stocks or anything else of monetary value. Secured credit cards are for people with either no credit or poor credit who are trying to build or rebuild their credit history.

Prepaid Credit Cards

Prepaid cards are, in fact, not credit cards at all BUT rather are used just like credit cards, wherever credit cards are accepted. The advantages of prepaid cards is that there are no finance charges and they help you avoid debt, in that all purchases are paid for beforehand. With prepaid cards you determine the credit line. Generally speaking, a cardholder's credit line depends on how much money he/she transfers to the card. Therefore, there is little risk of running up credit card debt, while budgeting is made easier.

Specialty Credit Cards

Specialty credit cards are for individuals with unique and special needs for their credit use. Examples of these types of cardholders include business users and students. These credit card programs are designed specifically to meet the needs of these particular groups.

Business Credit Cards

Business credit cards are available for business owners and executives and have many of the same features as traditional credit cards: low introductory rates, cashback rewards, airline rewards, etc. However, business credit cards can also have many additional benefits in comparison to traditional credit cards.

Student Credit Cards

Students generally have little or no credit history. Because of this quandary, students may often find it difficult to get approved for a traditional credit card. Luckily, student credit cards do exist. This type of credit card is set up to help students build up the credit history that most of them don't already have.

Student credit cards are often scaled back in terms of rewards, features and other benefits, but they can still be a valuable commodity. If used wisely, a student can take the first step towards building a solid credit history with a student credit card.

To get a student credit card, follow these guidelines:

An example of this is the Aspire Visa Gold credit card which charges an annual fee of $150, a monthly fee that adds up to $78 per year and a $29.It's actually made up of thousands of tiny magnetic iron-based particles. A credit card can be a great tool for managing your monthly living expenses. Pay your bills before the due date, as your payment history from this date forward will probably be the most important factor in raising your FICO credit score. Staying home is the luxury to which they aspire.

Scott Bilker, financial guru and author of Talk Your Way Out Of Credit Card Debt, says, It's one of those new ironclad rules that does not allow much leeway for talking or negotiation. These airline miles can be redeemed for flight tickets or substantial discounts at hotels, travel destinations or car rental agencies. Your history of making debt payments is an obvious factor, so is the total amount of debt that you presently have. It is amazing how one can aspire credit card offer do everything here.

Less Americans are carrying cash today, all because of the now highly used debit cards that are issued with nearly every bank account we open. Consumers that deal with credit card debt sometimes find it necessary to a get a little outside help. But you need to read through the offer very carefully to determine if it is an introductory rate or a long-term rate ongoing. The non-negotiable fee varies from offer to offer and is directly tied to the promotional APR, so if you carry a Chase credit card it’s important to read the terms and conditions with your particular card to know exactly what fees apply. They may, say, offer triple rewards points during the first six months you have the card, or offer more cash back if you shop at specific stores or eat out at restaurants.