Improve your credit rating (but not by skipping payments)
With credit getting harder and harder to find, new research from Moneysupermarket.com some of us reveals that up to one in six people in the UK are skipping payments in order to make ends meet.
The survey of over 2000 people found that 17 per cent missed a payment for at least one bill in the last 12 months, potentially putting their credit profiles at risk, with credit cards coming out on top as the most missed payment (7% of respondents). Council Tax was the second-most missed payment at 4%, with skipping mobile phone bills, personal loans payments, broadband, Sky and gas and electricity bills close behind, admitted by 3 per cent of those surveyed.
Those living in Scotland and Wales were the biggest culprits for missing a bill payment with 22 per cent neglecting their finances, while people in the East Midlands were the least likely to miss a payment, with almost 9 out of 10 not missing a payment on any major bill within the last 12 months. Or they are the biggest liars.
However, while skipping a payment may provide temporary relief, the long-term impact on your credit record cannot be over looked. Credit reference agencies retain information about all missed payments on your credit file, which can be checked by potential future lenders. And they might not like what they see. Worse, failing to make credit card payments on time can lead to penalties or the loss of promotional rates, which could cost a lot more in the long run.
Kevin Mountford, Head of Banking at MoneySupermarket.com, gave the following example: " missing your first payment on a 12 month 0 per cent credit card deal would cost an additional £300 in interest over the 12 months if you moved on to an average credit card rate of 17.29 per cent. Therefore, prioritising your monthly obligations and setting up a direct debit for the most vital bills is a must for those who tend to forget to pay on their deadline.”
"Missing a payment could also have a knock-on effect for future applications such as credit cards and mortgages. Those applying for a credit card need to prove they can make regular and stable payments and any black marks against a credit profile would hinder chances of being approved,” he added.
The site also offers some top tips for improving your credit rating, and the longer you can plan ahead before seeking new credit, the better. Moneysupermarket’s top five tips (together with our own twopenneth) are:
1.Check that you are on the Electoral Roll. Unless you are an illegal alien. Or an alien. Obviously.
2. Make sure your personal information is accurate. Sounds daft, but even a small errors in your name or address could lead to confusion and you ending up being tarnished by someone else’s bad credit brush.
3. Pay off your debts. This might sound entirely ridiculous (after all, if you had the money to pay off your debts, you probably wouldn’t need to borrow more) but could include cancelling old and out of date credit cards you no longer use. If you intend to use new borrowing to consolidate old borrowing, or take advantage of a lower interest rate then tell them so (unless you are requesting finance from your current lender).
4. Be a model customer. Clearly if you are already one of the 17 per cent payment skippers, you cannot be supermodel, but one missed payment might be forgiven by lenders. Just don’t consolidate the problem by missing more than one payment. If there are genuine reasons why payments have been missed, you can add a note to your credit file, but lenders do not have to read it, unfortunately. If information is inaccurate, you can write to the credit reference agencies to get the mistake corrected.
5. Build a credit history. Finally, the old chicken and egg situation. You can’t get credit because you’ve never had credit. In this case, it is worth taking out a high rate credit card (because that’s all you’ll be offered) and spend small amounts on it that can easily be paid off in full every month. That way you show you can be trusted without actually having to pay any extortionate interest charges.