Improving your credit rating

(Daniel Hollands) #1

Long term members of this forum will know that I’m saving for a deposit for a house, and thanks to asking about it on the forum, I was recomended the Help to Buy ISA by @chrisc - and now, over a year later, I have the aforementioned ISA.

So the next problem to solve is that of my credit rating, which once again brings me back here asking for help and advice.

My credit rating isn’t bad, with Noodle giving me a score of 3/5 (more specifically, 582 - which I believe to be out of 1000), but it’s in no way good, so if I’m going to be looking for a mortgage in a few years time, I want to do everything I can to improve it.

One suggestion which I’ve already acted on was that of getting a credit card. I have no intention of using the CC as extra money, but instead will simply act as a proxy for the money I already have, and will be paid off on full each month. I asked my bank (Halifax) about getting a card from them, but they could only offer me a 5 out of 10 chance of being accepted.

Because I didn’t want to run the risk of being rejected (and thus causing my credit rating to get worse), I decided to use the tool at Money Saving Expert to find a card that offered the best chance of being accepted, and went for an All Round Credit Card from Virgin Money - which after nervous 30 seconds of watching an ajax gif, informed me that my application had been successful, and they’d give me a limit of £3600 (far too much IMO, haha).

Anyway, that’s one of the things I’m doing to improve my rating, do you have any other suggestions?

Thank you.

(Steve Jalim) #2

If you want that to remain true, I would, once you get your credit card:

  • immediately set up a Direct Debit to automatically clear the card every month - that way you know the money WILL come out of your current account, just 50ish days later
  • leave your debit card at home (or deep in your wallet, for we-don’t-take-Mastercard emergencies only)
  • update all online things, incl Android Pay, coffee subscriptions, pretend food drinks etc, that take money out of your current account via debit cards, to go via the credit card instead - again, the goal is avoiding two routes to drain your cash, as the latency of a credit card can be misleading

patronising mic drop :wink:

(Matt Andrews) #3

You’ve probably seen it since you mentioned MSE, but this is worth a read.

(Daniel Hollands) #4

The direct debit set-up was part of the application process, although by default that’s set to take the minimum, it says I have the option to change this via their member’s area, which I’ll do as soon as I have access.

So you think I should use it for everything? I was planning on using it just for groceries and things purchased online - at least to start with.

I’m going to be using YNAB to keep track of my spending, and it’s automatic handling of credit cards (i.e. if I purchase something on my CC, it’ll automatically assign the correct amount of money from my current account to cover it at the end of the month), so I’m confident that I’ll only be buying things which I have money for.

(Daniel Hollands) #5

I have read that before, but it’s worth reading again. MSE seems to be on the level, and is almost already my first port of call when it comes to trying to understand something about money.

(Will Parker) #6

I’m not really in a position to offer advice as I have two maxed out credit cards and an horrendous credit rating but from everything I’ve read over the years the correct thing to do is set up all your monthly subscriptions/payments to come off your credit card. So Netflix, Hosting, basically anything that is the same every month and is predictable. Then you set up a direct debit to clear your credit card off every payday knowing that it’ll be pretty much £X amount.

Everything else should come out of your current account. I’ve not used YNAB in a long time but I did used to use it and it was really good. I’ve used software called Money Dashboard too which was good but I was too lax in filling it out and it was never really that beneficial.

I’m interested to know how you get on thou.

A few other things to improve credit ratings:

  • Ensure all your addresses and times at each address are correct with the credit reporting agencies - You can request a copy from each agency for £2 a pop. A quick google search should bring up the main (I think 4) UK ones.
  • Ensure you are registered to vote for your current address.

(Greg Robson) #7

Sounds like you’re doing all the right things.

Note that your rating may drop for a few months. Opening new accounts in the last 6 months can make you appear riskier in the eyes of credit agencies as they will think you are shuffling your money around.

I imagine you will be using far less than the credit limit of £3,600, which is good. Using less of your available credit makes you look safer, so I wouldn’t think about asking it to be lowered.

Sounds like you’re on the right track.

(Daniel Hollands) #8

I’ve just learned about the Rental Exchange scheme - basically a third party who sit between you and your landlord, and record the fact you’re paying on time.

This seems like a very good idea to me, as paying my rent is my largest single expenditure each month, and not once have I ever been late paying it.

Worth looking into it I think.

Update: I’ve just submitted an application for the scheme.

(Andy Wootton) #9

I’ve been told the same about taking out new cards or even opening new savings accounts, which seems positive. This is easily done if you’re shopping for clothes and you get offered silly discounts for store-cards that you never plan to use again. It’s also a lie that it will only take a couple of minutes.

When you come to buy, try to pay from an account the money has been in for a while or they think you’re the Mafia.

(Richard Cunningham) #10

I just say no to all those store cards that are actually credit cards. One time I had one of those things and forgot to pay it, the charge was more than I’d saved. I don’t like having too many cards in my wallet anyway.

(Daniel Hollands) #11

I got my card today. It’s much like a Blue Ringed Octopus, beautiful but dangerous.

After activating it, I went to Sainsbury’s and used it to buy £10.05 worth of groceries - an epic first purchase, I’m sure you’ll agree (and before you ask, the 5p wasn’t a plastic bag).

I logged the transaction in YNAB, and was impressed that it automatically moved the money from my grocery category’s envelope into a credit card one. This means that as long as I only ever spend money I have available in the relevant categories, and log everything correctly, I’ll always have the fund in my account at the end of each month to pay it off in full.

I’m not a fan of their site or the features it uses. I used to the Halifax banking features, and this seems to leave a lot to be desired. Just logging into the site is hastle, as you have to provide three individual digits from your password, as well as three individual digits from your password. I’m sure this is super secure, but it renders 1Password useless, and, IMO, just makes people want to simplify their password to make logging in easier.

In any case, as this isn’t as accessible as Halifax, I’m thinking I’ll only use the credit card for online purchases, and will probably only check of my YNAB transactions once a week (rather than 5 times a week like I do with my halifax account).

The credit card will be treated with the utmost respect.