Unused credit cards and overdrafts

Fryy

Nebulous2 wrote: »

Both of these can be true at the same time! In life you will often come across two competing rules / guides where you have to make up your own mind where to draw the line.

The problem is you are looking for absolutes where none exist.

I understand what you're saying, but actually I think you're wrong. It's literally algorithms that take in numbers and output another number (your credit score). So there are rules and absolutes. It's not about what my opinion is, or what I think is best. It's literally about optimising my credit score based on their algorithms.

Nebulous2 wrote: »

You need to think about what you want to achieve and how important it is. Why are you trying to improve your credit record? Do you feel an urge to borrow coming on? How important is your need for credit? Enough to make substantial changes to your habits to improve your credit history?

My goal is literally to maximise my credit score, so I can get a good mortgage and other borrowing deals. I do not need to use my credit card, but I could if it meant increasing my score.


My question is, how do these algorithms work and how do I maximise my score? Do I use my credit card or not? Is a big limit good? What ratio of limit to actual usage should I use? What about overdrafts? It is an exact science. I'm looking for an answer that contains maths, essentially.

CLAPTON

Fryy wrote: »

I understand what you're saying, but actually I think you're wrong. It's literally algorithms that take in numbers and output another number (your credit score). So there are rules and absolutes. It's not about what my opinion is, or what I think is best. It's literally about optimising my credit score based on their algorithms.




My goal is literally to maximise my credit score, so I can get a good mortgage and other borrowing deals. I do not need to use my credit card, but I could if it meant increasing my score.


My question is, how do these algorithms work and how do I maximise my score? Do I use my credit card or not? Is a big limit good? What ratio of limit to actual usage should I use? What about overdrafts? It is an exact science. I'm looking for an answer that contains maths, essentially.

you don't have a credit score so you can forget that as an objective

each potential lender will have their own criteria for lending : a loan may well be different from a CC and different from a mortgage
some lenders specialise in people with poor credit histories but charge high interest rates, others are only interest is the 'best ' people and charge low rates

for a mortgage i would suggest (but no I don't have an algorithm) that
-you reduce debt
-you don't use an OD
-you do use a CC(s) regularly but pay in full each month
-you build up savings for the deposit

Nebulous2

Fryy wrote: »

My goal is literally to maximise my credit score, so I can get a good mortgage and other borrowing deals. I do not need to use my credit card, but I could if it meant increasing my score.


My question is, how do these algorithms work and how do I maximise my score? Do I use my credit card or not? Is a big limit good? What ratio of limit to actual usage should I use? What about overdrafts? It is an exact science. I'm looking for an answer that contains maths, essentially.

You aren't going to get an answer which contains maths - because there isn't one. I never thought I would find myself saying this, but you don't have a score either!

The CRAs take the raw data they hold and churn out a number, which they think reflects your credit-worthiness. Each of them will have different algorithms - back to my both being true at the same time, some of them might keep rewarding you for available credit, beyond a point where another one has begun to deduct points/score for having too much.

However they are missing key data, likely to be the most important data. So they don't know how much you earn or how long you have been in your job. They also don't know about any accounts that aren't reported to them.

Lenders you apply to will know all of that because they will ask. They will then come out with several options, decline, approve or approve with less favourable terms.

You're still rearranging the deckchairs though, and it is interesting that you want absolutes from a non-existent score, yet are being wonderfully vague about your own aims.

If a mortgage is the aim then an extra 5% on your deposit, which is genuinely yours and doesn't have a corresponding debit on a credit card, will do far more than any amount of fiddling with credit limits.

Clapton has given you all the information you need to get a mortgage.

Fryy

CLAPTON wrote: »

you don't have a credit score so you can forget that as an objective

each potential lender will have their own criteria for lending : a loan may well be different from a CC and different from a mortgage
some lenders specialise in people with poor credit histories but charge high interest rates, others are only interest is the 'best ' people and charge low rates

for a mortgage i would suggest (but no I don't have an algorithm) that
-you reduce debt
-you don't use an OD
-you do use a CC(s) regularly but pay in full each month
-you build up savings for the deposit

I don't understand what you're saying. Of course I have a credit score?

Of course loans are different for mortgages and credit cards, but in general having a higher score means having a better deal, whether that be for phone contracts, mortgages or credit cards.

Going back to what this thread is about originally, how do you know your advice is correct? Why is going into debt and paying it off with a credit card good, but doing it with an overdraft is not? What percentage of the credit card limit should you use to raise your score? All of it? Or 0 (eg., not using it at all)? Is having a credit card with a huge limit good because it shows they trust you, or bad because it shows you can get into huge debt? How do you know your advice is good without knowing how the algorithms work? Etc etc.

Fryy

Nebulous2 wrote: »

You aren't going to get an answer which contains maths - because there isn't one. I never thought I would find myself saying this, but you don't have a score either!

The CRAs take the raw data they hold and churn out a number, which they think reflects your credit-worthiness. Each of them will have different algorithms - back to my both being true at the same time, some of them might keep rewarding you for available credit, beyond a point where another one has begun to deduct points/score for having too much.

However they are missing key data, likely to be the most important data. So they don't know how much you earn or how long you have been in your job. They also don't know about any accounts that aren't reported to them.

Lenders you apply to will know all of that because they will ask. They will then come out with several options, decline, approve or approve with less favourable terms.

You're still rearranging the deckchairs though, and it is interesting that you want absolutes from a non-existent score, yet are being wonderfully vague about your own aims.

If a mortgage is the aim then an extra 5% on your deposit, which is genuinely yours and doesn't have a corresponding debit on a credit card, will do far more than any amount of fiddling with credit limits.

Clapton has given you all the information you need to get a mortgage.

I'm sure a big deposit would help, but what's wrong with using a credit card effectively in addition to that?

I want to get the best deal possible and that involves doing everything possible.

Why is it the case that using a credit card and paying it off shows you're sensible about debt and is good, but doing the exact same thing with an overdraft is bad? If your credit card limit is (say) £1,000, should you use all of the limit, or only (say) £100 each month? Which will look best for the credit scoring algorithms (in general)? Would having a bigger credit card limit of (say) £10,000 look good because it shows the banks trust you, or would it look bad for getting a mortgage because it shows you can easily get into huge debt? Similarly for overdrafts? See, any answers should definitely contain some maths.

I understand that there are multiple agencies with different credit scoring algorithms, but I would presume there are some general rules that apply to all of them - eg., they all penalise those who have recently been bankrupt. So I'm asking for general rules, specific to overdrafts and credit cards, and also asking how people know which advice to trust as there are lots of conflicting pieces of advice around.

mije1983

Fryy wrote: »

I don't understand what you're saying. Of course I have a credit score?

There is no such thing as a credit score. They are just numbers given to you by a CRA which have no real meaning. What makes a score 954 and not 953? Why are they out of a thousand? Why not a million? Or a billion? CRAs can only guess at your suitability on the information they hold about you.

What you do have is a credit file which will be used by the lender. As said, lenders will look at different things to assess your application, and they do not make public what these are. If they did, it would make is much easier to manipulate the system. One lender may like a few credit cards sitting unused, maybe as a sign you are trustworthy. Another lender may see it as a bad thing that you apply for lots of credit without any reason. Nobody knows.

Have a read through this article if you haven't already.

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

Nebulous2

Fryy wrote: »

I don't understand what you're saying.

Of course loans are different for mortgages and credit cards, but in general having a higher score means having a better deal, whether that be for phone contracts, mortgages or credit cards.

That is largely wrong as well! For most of those things mentioned it is either approve or decline. If a mobile phone provider approves you you will have access to all the deals they have. You wont really get a better deal for being more credit-worthy.

The main area for better deals is personal loans and unsecured finance which will give better rates to people who they think are more creditworthy.

For mortgages the criteria are partly publicised 85% LTV, not new build, etc. Then you need to pass affordability. If that stacks up, and again there are calculators on their websites which will give you some idea, then you will be approved.

Nebulous2

Fryy wrote: »

I'm sure a big deposit would help, but what's wrong with using a credit card effectively in addition to that?

I want to get the best deal possible and that involves doing everything possible.

Why is it the case that using a credit card and paying it off shows you're sensible about debt and is good, but doing the exact same thing with an overdraft is bad? If your credit card limit is (say) £1,000, should you use all of the limit, or only (say) £100 each month? Which will look best for the credit scoring algorithms (in general)? Would having a bigger credit card limit of (say) £10,000 look good because it shows the banks trust you, or would it look bad for getting a mortgage because it shows you can easily get into huge debt? Similarly for overdrafts? See, any answers should definitely contain some maths.

I understand that there are multiple agencies with different credit scoring algorithms, but I would presume there are some general rules that apply to all of them - eg., they all penalise those who have recently been bankrupt. So I'm asking for general rules, specific to overdrafts and credit cards, and also asking how people know which advice to trust as there are lots of conflicting pieces of advice around.

Have you ever spoken to an accountant about what they do? I have a very successful accountant in my family who tells me that accountancy is an art it is not a science. Accountancy involves some maths sure, but a lot of it is judgment.

An overdraft is regarded as emergency finance. Using it and paying it off wouldn't make a great deal of difference, but living in it every month means you will be judged (that word again) to not be managing your finances. A credit card is seen as a useful tool, especially if you pay it off every month and get a month or more interest-free credit.

I have 8 credit cards and despite having a lot of current accounts I dont have a single overdraft. When opening an account I opt not to take one.

I'm pleased to see you have moved from absolutes to general rules. You'll be accepting that two conflicting pieces of advice could both be right next!

I break the rules a lot - especially in available credit on cards, but cannot foresee it causing a problem. Two credit card companies have put my credit limit up in the last 6 months, without me asking. They represent marginal gains in my estimation, not deal breakers.

Fryy

mije1983 wrote: »

There is no such thing as a credit score. They are just numbers given to you by a CRA which have no real meaning. What makes a score 954 and not 953? Why are they out of a thousand? Why not a million? Or a billion? CRAs can only guess at your suitability on the information they hold about you.

What you do have is a credit file which will be used by the lender. As said, lenders will look at different things to assess your application, and they do not make public what these are. If they did, it would make is much easier to manipulate the system. One lender may like a few credit cards sitting unused, maybe as a sign you are trustworthy. Another lender may see it as a bad thing that you apply for lots of credit without any reason. Nobody knows.

Have a read through this article if you haven't already.

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

Well, by "score" I mean the number(s) they give you on the credit file.

Like I say, I'm asking for:
(i) general rules of thumb to help raise these numbers, and
(ii) how people can trust/give certain advice about raising these numbers.

Fryy

Nebulous2 wrote: »

That is largely wrong as well! For most of those things mentioned it is either approve or decline. If a mobile phone provider approves you you will have access to all the deals they have. You wont really get a better deal for being more credit-worthy.

The main area for better deals is personal loans and unsecured finance which will give better rates to people who they think are more creditworthy.

For mortgages the criteria are partly publicised 85% LTV, not new build, etc. Then you need to pass affordability. If that stacks up, and again there are calculators on their websites which will give you some idea, then you will be approved.

But surely if your credit rating is high, you'll be able to be accepted for lots more deals, and therefore will be able to get a better deal!?