Should we use a “credit repair company”?
All that you really need to do here is ask yourself the question “legally speaking is it likely that anyone can change the facts that have been recorded on my credit file?”
You should then have the answer: No!
These so called credit repair companies often prey on financially desperate individuals, taking money upfront on the premise that they have some secret way of removing adverse credit information from credit files.
Service companies that ask for money upfront would set alarm bells ringing for most, however one can see how desperation can blind people in need of money.
Credit Repair companies know and exploit this situation. Warnings are issued by Credit Reference Agencies and Citizens Advice Bureaux alike; however people still get caught by these companies promises.
It’s important to remember that the information held on a credit file does not belong to the Credit Reference Agency, however they must take reasonable steps to ensure the accuracy of information.
Therefore, credit account information can only be removed if:
- the subscribing company instructs
- if directed by the Office of the Information Commissioners Office (ICO). The ICO states that it does not get involved in financial disputes. It would only get involved if information had been processed unfairly
Basically there are no ways around the system, unless data has been unfairly processed in some way.
Anything that a Credit repair company can do, you can do…………so why pay for it!
Things you can do:
- check your credit file and see if the information is correct. Any errors, get them corrected
- make sure that your electoral roll information is up to date
- if you have a default on file, write to the company and ask them to remove it. If it’s not a settled default, they may offer to remove it if you pay?
- ensure that any credit accounts that you have are maintained in accordance with the credit agreement
Don’t go near any company offering credit repair where payment is asked for up front.
What is a credit score?
Credit scoring is a tool used by creditors including most mortgage lenders, to help them decide the level of risk associated with a particular application for credit.
The information that they use to generate the 3-digit number is found on an applicant’s personal credit report and other information that is supplied on an application. Each lender has its own mathematical model for calculating its “score”, however this is always a closely guarded secret, otherwise applicants could possibly frame applications to get around the system!
In addition to using a different method to calculate credit score, each lender will have a minimum level of score that they are willing to accept for approval.
What factors affect your credit score?
A person’s credit score is based on their credit report and other information supplied on an application. Many factors on a credit report can cause a credit score to change, including:
- number of accounts, amount of credit available and used
- payment history, including Defaults
- number of credit searches
- Pay day loan information
- public records information including County Court Judgments(CCJs), bankruptcies
How can you improve your Credit Score?
- subscribe to one of the credit reference agencies’ services that monitor your credit file
- make sure that all repayments are made on time
- ensure that any unused credit accounts are closed if not needed, as having a large overall credit limit may be viewed negatively by lenders
- ensure that you can be found on the Electoral Roll
What is a personal Credit Report?
We are often asked this question, because people are confused between credit report and credit score.
A credit report is a file that details information held on people aged over 18 who are “in the system”. In includes information such as:
- names including aliases
- addresses, present and past
- voters roll information
- conduct of credit accounts, which can include utilities in some cases
- County Court Judgements
- IVAS’s (Individual voluntary Arrangements with creditors)
- details of any arrangements to pay or Debt Management Plans (DMP’s)
- searches of your file by credit providers and others
A personal credit file is accessed by lenders with your permission and is used by them to provide insight into how you manage your credit and finances. The majority of lenders use this information to generate a “credit score”, which they use to assess your propensity to pay. This score can be adversely affected by not being on the voters roll or too many credit searches.
There are some lenders that don’t use credit scoring, only the hard facts on the file.
Tip Tip: Check your credit file at regular intervals.
Can I Re Mortgage with poor credit?
We get a lot of calls on this one, so here goes:
If you have had a credit blip since taking out your main mortgage, in some cases the answer is yes.
However, in most cases, it won’t be worth your while financially, because, the rate offered by your existing lender, even if you are paying your lender’s SVR (Standard Variable Rates), is likely to be lower than introductory rates offered by lenders in the adverse credit market.
Now if your plan was to re-mortgage, not on a pound for pound basis, but with a larger loan for say home improvements, then a second mortgage might be a more cost effective option.
Well, your main loan will stay in place at its current rate, with only the extra borrowing being at a higher rate. The interest rate offered by second mortgage lenders in most cases is around that offered on many personal loans but because the term can usually be longer, the monthly payment will be less.
Can I get a mortgage with a poor credit history?
This questions is often asked and the answer is…… “it depends…”!
The answer is, what poor credit you have got, from whom and when!
As an example, if you were looking for a residential re -mortgage and had current mortgage arrears, chances are you would be going nowhere fast.
However, if you were looking for a re-mortgage and had picked up a communications company default 10 months ago, then you could be ok. Yes, the interest rate payable on a mortgage provided by a lender that will accept some adverse credit will be higher, but “beggars can’t be choosers”.
However, in the above case, if the re-mortgage is to raise capital to fund home improvements and the existing loan is on prime high street terms, the most cost effective option for the borrower could be to look into a second mortgage. This is effectively a secured loan that sits on top of the first. In this way the higher rate of interest would only be charged on the top up borrowing, instead of on the whole lot!
A few years of making contractual payments on both loans and the whole lot could be taken back to the prime low rate mortgage market.
Just a small point, second charge mortgages cannot be used in conjunction with Help to Buy or Shared Equity Schemes
Applicants looking for a mortgage provider that will allow a less than perfect credit history will be expected to provide a larger deposit than that asked for by a prime market lender; expect 20-25% dependent on what degree of acceptable adverse credit is on file.
A point to remember is that failing credit score does not necessarily mean that an applicant has an impaired credit file…………..but that’s another article.
How can I get to see the Personal credit file held on me?
There are 3 licensed credit reference agencies
- Call Credit
These companies are strictly controlled by Government and must process information lawfully. When asked all 3 of these credit reference agencies have a statutory obligation to provide applicants with a copy of their credit report.
This request can be made online or by post for a statutory fee of £2.
The content of the reports can vary slightly in terms of credit accounts as not all lenders submit monthly to all three. It’s worth getting a personal credit report from each agency to be sure.
How would I know if I have adverse credit?
Well if you apply for a mortgage, you’ll find out soon enough!
Most people know if adverse information has been registered on their credit file, but there are times when it can happen without prior knowledge.
- Say you had recently moved and your car remains registered at a previous address. You loan your car to your son who carelessly parks somewhere and picks up a camera overstay ticket. The car parking company finds you through DVLA records (yes DVLA sells them these) and serves a notice to pay on your old address. You ignore it because it’s never received. Next a default summons is issued and once again not responded to and guess what…………you have a CCJ(County Court Judgement).
- Identity theft is also a growing business, so people find credit cards and other loans taken out in their names which are never paid and end up in default. This of course is recorded on their credit file, until they can prove otherwise.
If you think that there is any possibility that you have something registered on your file like late payments on loans, credit cards, telecommunication bills etc, it is best to download a copy of your personal credit file before applying for a loan or mortgage.
What is a Default?
It means that you have defaulted on your promise to make the contractual payments on a credit agreement or, in more simple terms, you have failed to make the payments you should have.
The majority of credit providers will only issue a default notice after three to six months of missed payments.
A default notice is issued in a prescribed way and formally warns a debtor that they are behind on their repayments. It will give full details of the amount outstanding, the arrears and what is expected to be done by a date, in order to remedy the situation.
If the arrears are not satisfied, the credit agreement is said to be “defaulted”. This means that the agreement it is at an end and a default is registered on the defaulter’s credit file.
Once registered it stays on the defaulter’s credit file for 6 years from the default date. It can be subsequently satisfied and would be marked as such on a credit file.