Credit Card improve Credit Score or Bank Strategy

wilsonjack10

There's a lot of reasons I think we all want to build up our credit score, and I've read multiple different sources - including this website - that using a credit card and paying it off in full + in time with a direct debit improves this. However, I'm uncertain if this is just a bank strategy to get their customers using credit cards. Is there actual evidence or information that makes it more certain that using credit cards regularly is a factor that improves a credit score?

grumbler

wilsonjack10 wrote: »

Is there actual evidence or information that makes it more certain that using credit cards regularly is a factor that improves a credit score?

Well, without a credit history you can't have a good credit score, can you?

What credit history do you have if any?

That said, a "credit score" is something very vague, not to say non-existing.

wilsonjack10

Thank you for your reply.

Well I read there is more external factors, including being accurately registered to the electoral register for example, which 'apparently' impact your credit score.

Personally, I've used a credit card religiously for two years (is that good or premature? thanks for your reply in advance) which is why I want to know if it's worth it - not just for the added protection on using a credit card.

I understand this changes for different banks but I was wondering if it's conclusive that using credit cards is worth it and actually is looked at by banks, and if it is, am I using it in the right way by paying it full?

(for context, I'm building this up for a future mortgage)

[Deleted User]

Yes - it shows you are capable of borrowing and repaying money (or not, as the case may be).

Always clear in full.

PeacefulWaters

Simplistic way of looking at it is PeacefulWaters very own pretend credit score builder.

Registered to vote at address. 100 points.
Time in job. 3 points per year capped at 99 points.
Time at address. 3 points per year capped at 100 points.
Well conducted credit agreement. 40 points for the first five. Minus 20 points for each one over five.
Poorly conducted credit agreement. Minus 50 points.
CCJ, default or bankruptcy. Minus 150 points, or minus 250 points if greater than £2,000.
Utilisation of credit limits. 100 points minus 1 point for each 1% used.

Maximum score 599.

All made up numbers, but an example of how a lender could determine suitability of an applicant.

bigadaj

PeacefulWaters wrote: »

Simplistic way of looking at it is PeacefulWaters very own pretend credit score builder.

Registered to vote at address. 100 points.
Time in job. 3 points per year capped at 99 points.
Time at address. 3 points per year capped at 100 points.
Well conducted credit agreement. 40 points for the first five. Minus 20 points for each one over five.
Poorly conducted credit agreement. Minus 50 points.
CCJ, default or bankruptcy. Minus 150 points, or minus 250 points if greater than £2,000.
Utilisation of credit limits. 100 points minus 1 point for each 1% used.

Maximum score 599.

All made up numbers, but an example of how a lender could determine suitability of an applicant.

Not a bad idea, but experians is better you can get 999 on that even if you have defaults and a ccj.

Doctor_Duke

It's really about your credit history and how you have managed your borrowing in the past. Try not to get too bothered about credit scores as they are meaningless it's all about your creditworthiness. Individual lenders have their own credit scoring (note not score!) criteria and this varies from lender to lender. They will literally score aspects of your financial and personal circumstances including income, electoral roll, employment, residential status, whether you have previously had a relationship with them and information that is on your credit file which could also include any financial associate along with your credit history. If you score enough they will lend to you, if not they will reject you.

Ebe_Scrooge

^^^ This. It's all about your credit history - any potential lender will be looking to see a history of responsible borrowing and repayment. Don't overstretch yourself, prove that you can comfortably repay what you owe, on time every month without fail. Credit, used wisely, is a wonderful thing. You can get rewards / points / cashback etc. on your borrowings, S75 protection. The crucial thing is not to look on it as a way to spend more than you can really afford. Don't forget, every time you pay by credit card, the card company makes a profit by charging the vendor a fee. As long as they get their money back from you, they're happy. If you don't pay in full, and you pay them interest, they're doubly happy - as long as they get paid eventually.

So yes, use the card for everyday spending, pay in full, pay no interest, it shows you're not struggling to meet your commitments. Everyone's a winner ( well, apart from the poor vendor who's paying charges to accept your CC, but this is why some retailers pass on the charge to the customer ).

Look at it this way. You ask me to lend you £100. I see that you've a history of not paying your debts. Will I lend it to you ? No way, that's £100 down the drain to me. Have you always paid your debts in the past ? Yes ? Great, bring it on, I've got an odds-on chance of having my £100 repaid, plus a nice bit of interest into the bargain. You've got no history to show you're trustworthy ? Nah, I'll pass, I prefer to stick with those with a reasonable chance of paying me. Which is why those with no history tend to start with "sub-prime" cards - who are prepared to take the risk, but charge a massive amount of interest to cover their potential losses. Once you've built up a history, you can move to more mainstream lenders who prefer the lower-risk customers.

onthefencepost

My experience:

Had several defaults over the years.

Luckily my bank account was straight and i retained it.
Had a mobile contract before the defaults

I got declined for EVERYTHING - until i applied for a Aqua card, got a low limit for £200 i think now i'm over £1200 I carry a very small balance on it for a few months then pay it off. I applied for a catalog and a Argos card - again bought very low value items and paid them off - although my previous history is very poor and some of its still on my file as its not six years old.

However the new stuff is certainly helping I've just received another mail shot of credit card and mobile phone contracts. Again not interested in anything like that - but proves having and managing credit correctly works.

For me I must do this as im looking to get a mortgage in the next coming years - by which time most of my defaults will be off bar one which im going to get settled.

[Deleted User]

onthefencepost wrote: »

My experience:

I carry a very small balance on it for a few months then pay it off.

You should try to clear it in full each month. An inability to clear even a small balance will ring warning bells.

onthefencepost

I agree - however when i did do this the credit file just showed zero and i've read (not verified with all this internet chatter) that having no balance on there deters lenders from you as they wont make money.

I carry a balance around £50 - 70 pounds always pay more then the minimum payment then clear it off totally. I do notice although its not relevant that my credit score jumps up once its cleared!