Beware the red flags that can hurt your credit score and hike bills
Surprising new factors could hit your rating
ARE you wondering why you are finding it hard to get a mortgage, or why your broadband and insurance bills have risen recently? It could be a hidden detail that is lowering your credit score.
Gone are the days when managing your credit rating was simply a matter of making sure you paid off your credit card bill on time each month.
A host of other factors, including shopping around for insurance quotes, submitting mortgage applications and missing rent payments, could affect your rating.
In addition, banks and other product providers are putting greater emphasis on the need for a good credit score. Your rating can affect everything from the amount of money you can borrow to buy a home to your ability to get a mobile phone contract.
A negative mark could raise your future broadband bill by more than £100 a year, according to the credit card provider Aqua.
Brokers have reported a knock-on effect from the mortgage market review, which brought in new rules in April to curb irresponsible lending. Applicants who struggle to meet the stringent affordability tests are dealt a double blow if they approach more than one lender. Even two applications in a short space of time could dent their credit score, making it even harder to qualify for a home loan.
Adrian Anderson of the broker Anderson Harris said: “Going from lender to lender is bad news for your credit score and is like a red flag to lenders because it suggests someone desperate to borrow money.”
Many of the high street mortgage providers, including Nationwide, NatWest and Santander, leave a mark on credit histories, known as a “hard search” or “hard footprint”, when they check them.
Not all do, though. Those that perform a “soft search” include Halifax, Accord, Precise, Metro bank and Aldermore bank. Always ask the lender what sort of search they do before making an inquiry.
Henry Knight of the broker Springtide Capital said: “As a rule of thumb, the smaller lenders — such as Accord and Coventry building society — have less appetite to accept any kind of credit blips and are far more likely to decline an application.
“The likes of Halifax, Santander and Woolwich will accept the odd minor issue, such as a late credit card payment. However, the higher the loan-to-value ratio on the deal, the less likely it is that there will be any form of tolerance.”
Anderson pointed out that some small players were more forgiving than others. “If there is a genuine and explainable reason as to why there are misdemeanours on a borrower’s credit file, some lenders, such as Clydesdale and Metro, will take the time to look past the credit score.”
Details of utility bills began appearing on credit reports last year. However, not all energy suppliers provide information.
James Jones of Experian, one of the main agencies, said: “Half of the big six energy firms give us information on how their customers manage their gas and electricity accounts. Any missed energy payments will be visible to other creditors and could impact future credit applications.”
Yorkshire Water is one of the companies that does share information with Experian. The agency said it expected more utilities to follow suit.
Neil Munroe of Equifax, a rival agency, said: “Any missed or late payments could indicate that an individual is financially stretched or lacks responsibility in repaying debts.”
Tenants who pay rent late may get a black mark on their credit reports. Some landlords have signed up to share information with Experian. Anyone who shares a rented home should beware. If one tenant fails to pay their share of the rent on time, flatmates’ credit history could be affected too.
Insurance bills, and the way they are paid, are also starting to affect credit scores. Jones said: “Although not yet widespread, insurance can now feature on credit reports for customers who choose to pay in instalments.”
Monthly instalments will be worse for your credit rating than a one-off annual payment, even if you pay all the monthly instalments on time.
Using price comparison sites to find premiums will show up on your record, too. Jones said: “When you shop around for insurance it is not unusual for this to generate quotation search footprints from the insurers that work with the credit reference agencies. But only the footprints generated by you proceeding with an application can be factored into credit scores.”
As with mortgages, too many credit card applications could put you in a bad light. Luisa Diaz of the consumer group Which? said: “Credit card and loan applications will be visible to prospective lenders, and in certain circumstances this may affect their willingness to lend to you — such as applying for several credit cards in a short time.”
The comparison site moneysupermarket.com has a free tool, SmartSearch, which shows what credit cards and personal loans you are likely to be accepted for, without risking a mark on your credit score.
You check your credit report by paying £2 to one of the agencies — Experian, Equifax and Callcredit — or by using a free service such as Noddle. You can add comments to it, such as an explanation for any missed payments, by requesting a “notice of correction”.