Borrowers should keep their champagne on ice. Sure, the government is pumping billions into the banking system, but the Libor rate – the one that actually dictates the cost of personal loans and mortgages and is set by the banks rather than the government, remains stubbornly high. What’s more, refinanced banks such as RBS are highly unlikely to restart the credit boom by making risky loans to already overstretched borrowers. Quite the reverse, in fact – as Tim Moss puts it in The Times, “soon you are going to need a spotless credit score just to get a paper delivered to your door”.
That’s going to be the case regardless of how much cash you might already have. Today, property buyers are very focused on deposits. For those without at least a 10% deposit, mortgages are effectively non-existent and for the best mortgage rates think more like 40%. But even if you have the cash, a poor credit rating can derail your application. For any kind of unsecured borrowing, either via a new personal loan or credit card, a decent credit history is now what Moss calls “the must-have accessory”. So how can you find, and then improve, yours?
Start by contacting one of the three credit reference agencies, Equifax, Experian and Callcredit. A report will cost you £2 or you can pay Checkmyfile.com £16.95 for unlimited quarterly access to your reports from all three firms. Write to the relevant agency immediately if you spot an error, provide supporting documentation to back your case and get a “notice of correction” added to your file.
Next, ensure your borrowing history is whiter than white. Check that your name is on the electoral roll, as lenders use it to confirm your name and address. Next, use any surplus cash you are fortunate enough to have to reduce existing debts.
Now make sure you pay all outstanding bills – utilities, store cards, existing credit cards – on time, as a missed payment will tarnish your score. Never simply miss a payment if you are cash-strapped. Call the company involved and negotiate. Then, says Neil Munroe of Equifax, make sure you close accounts that you never use such as for old store or credit cards. That will reduce outstanding debts and show you can settle your obligations.
Finally, don’t make multiple applications for credit that result in repeated rejections – that leaves a big “footprint” (file visits are captured electronically) on your credit file and can make you look a bit desperate. And the last people lenders want to give money to is the desperate.