Low credit score but never been in financial trouble, found out trying to help a mate

I am in my thirties, university postgraduate. Due to the lovely economy, I currently live with my mother because there's just the two of us, and she is getting on a bit and wants someone in the house with her. I am employed (been in the same job for 5 years) and do not claim any benefits. My mother is the homeowner and the name on the household bills, she is on a state pension, but again theres no debt there though, and never has been.

Other than a current account which I have had for 13 years, and my student loan, I have never ever been in debt, or even overdrawn, I have never used a financial product, or a contract item like a phone or Sky, (I am a stickler for living within my means, so phone is pay-as-you-go, all bills of mine that I incur are paid either on the dot, or more usually early, I have never had a car, mortgage, credit cards or any of those things for getting into financial trouble, and when I lived away at Uni, monthly rent was paid a week early in cash to private landlord, as I do with my mother here and now, with a weekly rent and bill contribution payment). I also have no criminal record or anything like that.

A friend, about to be made homeless, asked me to act as guarantor on a short term loan so he can pay off his rent arrears, I was amazed when I went through the credit check, to discover that despite no trouble at all, ever, in my life, I have a very bad credit score. I was told it couldn't be much lower if it tried (in fact we were both amazed) ... I can only assume, from looking online, it is because I have never got into financial hot water (which isnt something I plan on doing)

How does that happen, when you have lived squeaky clean all your life? Can you improve your score somehow without needing unnecessary credit cards and financial products and similar messing about, none of which I want or will use? (thats a long term thing for myself).

Also, any ideas on what my friend can do? It is a privately rented flat, that he has, I could lend him a quarter of the money needed but no more than that, and if he has a payday loan, wouldn't it be easier (which I will suggest to him in the morning) to use those loan repayments as payments direct to his landlord, as paying off the arrears in an agreed payment instead of getting a loan?

Replies

  • Gaz83Gaz83 Forumite
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    Credit scores are worthless. Lenders don't see them.

    However, as you have virtually no credit history, lenders don't know if you can be trusted. The credit ratings agencies manifest this as a low credit score. In reality it means that lenders will be extremely reluctant to lend to you, because you've no history of paying off credit.

    Think of a credit profile as evidence you can be trusted to borrow and repay money. Logically, then, you can't build up evidence that you can be trusted to borrow and repay money unless you borrow and repay money.

    Most people begin by getting a credit card with a low limit, using it throughout the month to pay for fuel, for example, and then clearing it in full each month. That way you won't pay any interest and it shows that you are responsible in settling what you owe.
    "Facism arrives as your friend. It will restore your honour, make you feel proud, protect your house, give you a job, clean up the neighbourhood, remind you of how great you once were, clear out the venal and the corrupt, remove anything you feel is unlike you... [it] doesn't walk in saying, "our programme means militias, mass imprisonments, transportations, war and persecution."
  • Gaz83Gaz83 Forumite
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    PS don't act as a guarantor.
    "Facism arrives as your friend. It will restore your honour, make you feel proud, protect your house, give you a job, clean up the neighbourhood, remind you of how great you once were, clear out the venal and the corrupt, remove anything you feel is unlike you... [it] doesn't walk in saying, "our programme means militias, mass imprisonments, transportations, war and persecution."
  • Edi81Edi81 Forumite
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    This may be the best thing that could have happened.

    Acting as a guarantor for friends or family can quickly ruin friendships. Do a search on here for some examples.

    As gaz said the score is pointless. You only have credit information that lenders interpret in their own ways. If you ever need to get credit eg a credit card for s75 protection Make sure you are on the voters roll and go through your bank in the first instance.
  • Edi81Edi81 Forumite
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    As regards your friend they should avoid payday loans like the plague.

    They should get in touch with Shelter for advice. Why is your friend being evicted? Rent arrears or something else? Has the eviction notice been issued correctly.

    Borrowing their way out of the situation is not the answer.
  • NasqueronNasqueron Forumite
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    Just to reiterate - a guarantor means YOU are liable to pay the bill if/when the friend stops paying, it is YOUR credit that will be destroyed for years if you have problems paying back THEIR debt.

    The forum is full of horror stories of friends and families realising they are trapped paying off someone else's debts as the loans companies like Amigo really do not make it clear enough that the guarantor pays the bills and will have the horrific interest rates.

    Borrowing to pay off debt is nonsense, it just means more debt - what happens the next month even if he clears arrears - how will he pay the next lot of bills? These things always start in good faith until the friend realises they can skip the payments as you will be charged and then slowly they stop replying to texts and ignore your calls and suddenly you are paying 50% interest payments.

    If you are really desperate to help them, give them a temporary place in your house until they can get proper help.
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  • If I were you I would get a credit card, probably one that is called a credit rating builder card.
    Do some spending on it each month, and pay it off in full at the end of the month.

    This will help build a better credit history.
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  • statorstator Forumite
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    Your credit rating isn't a rating of how good you are at managing your money, it's simply a rating of how good you are at paying your debts. No debts = no rating.

    Ps as others have said, don't be a guarantor unless you are willing to repay the whole debt yourself and not get upset about it. There are countless threads on this forum about people who got into serious trouble by acting as guarantor. If you are willing to lose ALL The money, then go ahead, it's your money to spend as you want :)

    Follow the advice to build up a credit history. Get a small credit card from your bank, use it for small items and pay it off every month. Also make sure you are on the electoral roll at your address :)
    Changing the world, one sarcastic comment at a time.
  • I only have two recommendations. Firstly don't act as a guarantor. English law is very strange, if you agree to be a guarantor you are not just agreeing to guaranteeing the rent for the fixed contract originally signed but indefinitely until the case the the person moves out or the rent is changed. If they go onto a rolling contract you could be guaranteeing the rent for years. From what I've read there's no onus on the landlord to evict in such cases (or no rush at least).

    Many private landlords don't need guarantors.

    Secondly get some form of credit. You can live within your means and build a credit history at the same time. Get a credit card, spend your normal monthly shop on it, leave money you would have spent in your account and have a direct debit set up coming from it for the full amount each statement pay date. You're lucky you have your mothers house but if you ever need a mortgage for another place or an emergency loan you're going to wish you had a credit history.
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