£200k a year income; PCP declined for £650 pm

fabiantony

THE STORY
Despite having a high yearly income and a stable financial situation with no late-payments/defaults, no matter what I try, it seems impossible to be able to get out of the sub-prime risk band causing nearly all of my very few credit applications to be declined - most recently at Mercedes Benz while trying to PCP a new car with £10k down and 36x £650 monthly payments (7.5% of net monthly disposable).

FINANCIAL HISTORY
I am a 28 year old, self employed IT contractor. have always been very careful to pay things on-time, as well as maintain what i would consider a very responsible approach to finances. I have no outstanding debt (well, £100 on my credit building card which I only use to create a history) and have only been declined for two applications about 2 years back (credit cards) and now.

It was right after that first couple of credit declines nearly 2 years ago that I started proactively monitoring my credit reports and trying to tick the boxes for improving my credit score; registering on the electoral role, getting a credit building credit card, etc yet the more I try the worse my credit score seems to get. For example; in the exact same situation 2 years ago I was reported good, today its reported poor across the board.

My credit utilisation history goes something like this;

Unsecured Loan - Lloyds Bank - 4 Years - £10,000
Paid always on time, in full, in 2 years
(closed 2015)

Planned Overdraft - Lloyds Bank - £1,500
Was active for 5 years, intermittent usage, never over, since disabled
(closed 2014)

Credit Card - Capital One
Issued 2 years ago, current limit £800, always paid in full, never over the limit, rarely over the 50% threshold.
(currently in use)

Utilities - Mobile Contracts / Bills / Insurance / Rent
Never late or defaulted. History for over 6 years.
(ongoing)

THE CREDIT REPORTS
Experian
Current Score: Poor (611)
Positive Factors: 8 settled accounts, average age of account is 4 years, 5 non-mortage credit accounts, non-mortage credit £200, no credit applications in 6 months.
Negative Factors: Highest credit limit is £800, and no long stay at address (private tenant, usually 1-2 years)

This is by far the most volatile of all the reports seems to be rather like a random number generator. Everything in the report seems accurate.

Equifax
Current Score: Poor (338)
Reported Negative Factors: None

Was fair score for over a year, this month they decided to lower to poor. No changes in the report aside from the score.

Noodle
Current Score: Poor (568)
Reported Negative Factors: None

CallCredit refuse to acknowledge the fact that I am in the Electoral Register despite raising various notice of corrections and being there for over 18 months already.

OTHER THOUGHTS
MSE Credit Club
Today I joined the site's Credit Club. After completing my information and security checks, it pulled my Experian score as well as calculated my affordability index and credit hit index.

The first surprise was the credit score MSE reports from Experian (Good / 931) is different from the one that I see when i login into the Experian site (Poor / 611). I still don't know how that's even possible since i've never noticed a score as high as that before - Im hoping someone might have a thought?

The second surprise is my credit hit rate (how likely i am to be approved) was 10%. It seems very disjoint to the credit score reported, as well as to the high affordability index calculated. Again, very confused about all of this, hoping someone can might have some advice around this?

Self Employment
Since I graduated, about 6 years ago I have been employed with no gaps (except recently, more on this later) but mainly as a permanent employee. Since January 2015 I have been self-employed with monthly recurring income being pay-out to me every month.

I took period of sabbatical from Jan 2016 to May 2016 in which I personally did not have any monthly cash flow incoming to my personal accounts. My credit utilisation did not increase or changed during that period.

Financial Links
My other half and I are in fact financially linked. She used to have quite a fair amount of debt racked up, around £12k (shop cards, unsecured loans, various cc debt, overdraft, etc). Since 2 years ago we made every effort and paid off all of that debt in a few months.

All our accounts (debit, savings) are joined and have little-to-no debt since 18 months ago. The only negative factor in her accounts are a defaulted account (£300) around 4 years ago. While we can understand thats a bad thing, it seems crazy £300 could bring her and my score to its knees despite a high household income and lack of debt.

FIN
Apologies for the rather extensive post, I can only hope it shines some light into the super frustrating situation I am experiencing. It was mine and my partners hope to be able to buy a house in the near future, but with scoring / credit refusal rates like these its looking ever so difficult.

Many thanks once again to everyone.

DCFC79

The agencies have no idea of your salaries nor are the scores/ratings seen by the lenders but you only. For a start I can save you 14.99 a month right now, get rid of paying Experian each month.

fabiantony

The agencies have no idea of your salaries nor are the scores/ratings seen by the lenders but you only. For a start I can save you 14.99 a month right now, get rid of paying Experian each month.

Thanks a million, much appreciated.

Is that the same for credit hit rate indices? - meaningless?

Bonfire_Bride

When you're self employed, creditors usually want a certain period of self employment as this shows you are not a lending risk. This period will also need to be supported with documentataion.The break in employment is also a concern and most finance companies will not lend unless you are employed and have been for some time. You can change jobs no problem but long breaks in employment are risky.

Also, the length of time at your address can be a risk...if you were to default..there is a high possibility you could move and take the vehicle with you.

£650 per month on a vehicle is rather high and if the cost of the vehicle is over 30k (or even 60k)...you must reach very strict lending criteria. What reason did the finance company give you?

Bonfire_Bride

Your best chance may be to increase the deposit OR go for a less expensive vehicle.

fabiantony

Great points, thank you very much for taking the time!

The break in employment is also a concern and most finance companies will not lend unless you are employed and have been for some time

Excellent point, in this particular circumstance I thought that could have something to do with the decline. That being said, it explains little around why my success rate has been so poor in the past

...if you were to default..there is a high possibility you could move and take the vehicle with you.

I see what you mean, very sound point.

What reason did the finance company give you?

Typical 'at this point you did not meet our lending criteria'

Your best chance may be to increase the deposit OR go for a less expensive vehicle.

I know of someone that is singing you praises right now

Bonfire_Bride

Cars depreciate in value soooo quickly...even the lovely expensive ones.

dealer_wins

Any reason you cant save up for your next luxury car?

bazzyb

The change to self employment will be a factor, but regardless of that I would still expect the same decision based on your credit history.

You've not said what car you're looking at but from the figures posted you're presumably looking to finance a vehicle worth around £50k, and the only line of credit you have for lenders to see currently is a credit card with an £800 limit. This is a massive risk to lenders regardless of your income. Added to the fact that you haven't been on the electoral roll for a significant amount of time, it isn't looking great.

The only options to you are likely to be sub prime who will be willing to take the risk, and that will be higher rates and no doubt hire purchase rather than PCP. The best solution would be to look at a different car and work up to your dream car in the future.

fabiantony

Any reason you cant save up for your next luxury car?

No reason other than probably being impatient and trying to move cashflow into different directions (i.e. pension, deposit, etc). But point taken!

the only line of credit you have for lenders to see currently is a credit card with an £800 limit. This is a massive risk to lenders regardless of your income

Excellent point, makes a lot of sense for this circumstance. My frustration though has more to do with the idea that after trying my worthiness has not increased, and apparently I am still not "good" for a typical credit card application (i.e 10% credit hit rate).

I guess my question in this scenario would be; should I be going out there and getting 2/3 credit cards and a basic planned overdraft just to increase the bandwidth of the line?

sub prime who will be willing to take the risk, and that will be higher rates

That was never an option to be fair.

The best solution would be to look at a different car and work up to your dream car in the future

Wise words, will probably have to do in this regard.

jamesd

fabiantony wrote: »

Is that the same for credit hit rate indices? - meaningless?

Experian credit scores are available free of charge with monthly updates from the MSE Credit Club that you're signed up for so no need to pay Experian if you're actually doing that. For more details of an actual credit report the Call Credit reports available free from Noddle should do the job. To complete the set, ClearScore will provide you with the Equifax score.

The checks done by MSE should produce more accurate results because they will use a soft credit search using your real credit record and check that with a service provider that knows what many credit providers want. That will also use salary, employment and time at address information that is not used in the credit scores provided by Experian, Equifax or Call Credit.

Neither credit scores from credit reference agencies nor the MSE checks are meaningless though some people dislike the credit reference agencies or their charged services so much that they lie to people by claiming that they are meaningless or random numbers. What they are is imperfect because their scores just use the information from the credit report, not the more complete information in an application for credit and the specific scorecard (the scoring rules) used by each lender. You'll also a steady stream of silly reports that say a person who is bankrupt or similar has a great score, perhaps because of missing data on a report or an address mismatch or bug. The trends over time are more likely to be of use than the single score.

Are you really self-employed or are you an employee of your own service company or some agency? The difference can matter. Self-employed people are generally regarded as higher risk than employees.

As an IT consultant you're probably in what would be considered to be a high risk occupation. Not you personally but that can appear to be the attitude of lenders to relatively young people in that particular type of employment.

Your very low £800 credit limit could be a problem. Low limits can be taken to be a sign of a lack of trust while high limits can be taken to indicate good past conduct. Ironically a higher limit if available could improve your chances of getting other credit.

Your thought of using more credit cards is good but if just for credit record building stop at three. Also don't close the oldest card because the length of time that you've had the longest held products makes a difference. You already have a fairly low longest time for having held a card and you don't want to dump that until you've say five or six years accumulated on another one.

Types of credit matter also, a low value personal loan would be helpful. You can pay most of it off just after getting it so the cost is low and it's mostly just a Pound or so each month on a direct debit to help boost credit scoring results.

Regrettably the negative credit performance of the person you're financially associated with will do some harm though given its age not so much. Being self-employed for a fairly short time is probably the most harmful single thing for you. Likely to be quite strongly negative for at least the first three years and then at a lower but still substantial level for as long as you're self-employed.