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Your Credit Score is now so important
by Nick Stephens
The need to have a good credit score has always been important but in the current economic climate it’s vital.
The lenders credit squeeze has meant their attitude to risk has changed. The banks are suffering a liquidity crisis which is limiting the amount of money they have available to be able to lend to borrowers.
This has made them very cautious when it comes to lending criteria.
Borrowers who a few months ago would have had no problems getting a loan are now finding that those couple of small blemishes on their credit record is causing them a problem when it comes to new borrowing. Lenders are now either charging higher interest rates or refusing to lend all together.
This problem is likely to get worst. Lenders are starting to report more and more people are missing mortgage payments sometimes only for one month but that missed mortgage payment could have a big effect on their chances of getting a competitive rate the next time they come to re-mortgage or move house.
Lenders never disclose the way their credit scoring systems work and so it is hard to say exactly how different credit problems will be scored but you must remember every time you are late with a credit payment or miss a payment completely it will be noted on your credit report. This lapse will show up to another lender when you try and apply for new borrowing. If at all possible maintain the payments on your mortgage as missing payments could have a big impact on your credit score.
Below is some of the information that lenders use to create a credit score for you. Any or all of the following points can be taken into account when compiling a credit score for you.
How well you maintain payments for your current borrowing.
What other forms off borrowing you have repaid.
How many credit accounts you have.
Checks for any arrears, defaults or court judgements against your name.
There is also a check on the number of other lenders you have applied to for credit within the last 12 months.
Your financial association with some else who may have a poor credit history will also be recorded.
How many times you have changed jobs in the last few years. How long you have been in the current address.
All this information is gathered from different sources but most lenders use at least one of the main credit reference agencies.
The credit reference agencies don’t give you a credit score, it is down to individual lenders to get your credit record and put their own weighting on the different areas of your credit record. The resulting score will be determined by the lenders attitude to risk and what type of borrower they are happy to lend to.
If a lender can’t get an accurate credit history for you it can mean you will be penalised by having a lower score. It is important therefore that you provide all the details they request. Make sure you are accurate and give them your full name, current and previous addresses and your date of birth. You must also be honest with the information you give. If you have had credit problems don’t ignore them and hope they won’t be noticed. Lenders react better to credit problems they know about rather than ones they find during a credit search.
In the past lenders have used your level of income and the size of the loan required compared to the value of the property as a major factor in deciding whether to lend or not. The current credit squeeze is forcing lenders to take more account of your credit score and repayment history than anything else when making a lending decision.
Unfortunately the situation now is lenders are more likely to decline a mortgage application than they would have in the past. Minor credit problems such as missed mobile phone bills or small credit payments that previously would probably have been ignored are now being taken into account.
Because lenders are more reliant on your credit report in making decisions it can lead to some people being declined when they would expect to accepted without any problem.
This can be due to wrong information being recorded in you credit history. If you have been declined for a loan and feel you should not have been the first thing you need to do is get a copy of your credit report. Check the information recorded in the report and if there is any thing recorded you don’t agree with get in touch with the lender who has registered the wrong information and ask them to amend your credit record.
There are ways to improve a credit score which aren’t too difficult to manage.
It is now vital that you maintain all your credit payments in good order.
Do not forget payments or have late payments even by a few days.
If you are paid on the first of the month and your mortgage payment is due on the first, ask your lender to change the date they ask your bank for the money. It can happen that the money you receive does not clear in time for when they request payment. This means every month you are being shown as having made a late payment even if it is only by a couple of days.
If you are in arrears with a lender try and catch up with payments, don’t leave the arrears sitting there. You may well be maintaining regular payments now but the arrears are still showing as current.