Current Accounts & Credit Ratings

colinjd

Morning,

Can anyone explain to me why an application for a new current account - and specifically with NO overdraft facility - means my credit score takes a hit?

Like a lot of people on these boards it has been necessary in recent years to take advantage of the interest rates available in current accounts so for some time I've had First Direct, Santander 123 & TSB Classic Plus a/cs. I recently applied & was accepted for both an HSBC Advance & Tesco Bank a/c but the process of applying has knocked 83 points off my credit score at Experian.

After some difficulties 15 or so years ago I've steadily re-built my credit score so when there is no CREDIT involved in these accounts and they are funded by my own money, why does my credit rating take a hit?

Just seems a little unfair to me, but I suppose, what is fair in the world of financial services these days?

Tks

[Deleted User]

It's due to your credit score not being representative of anything. Credit scores react negatively to any change, which is why they have little value and are not used by anyone.

Ignore it.

colinjd

Deleted_User wrote: »

It's due to your credit score not being representative of anything. Credit scores react negatively to any change, which is why they have little value and are not used by anyone.

Ignore it.

If they have such little value and are not used by anyone, why is there so much advice around here about how to repair & improve your score? What's the point if nobody uses it?

[Deleted User]

Because people don't understand the difference between scores and credit files.

You want to build a solid credit history that lenders will view as low risk.

Credit scores don't reflect this, so it is pointless in trying to influence it.

Two populations who tend to have high credit scores are 18 years old with no credit history and bankrupts after a couple of years.

Neither group are good prospects for credit.

sourcrates

Credit scores serve only one purpose, and that is as a marketing tool for the credit reference agencies.

They are a buisness and have to make money however they can, they sell information to creditors, and credit improvement products to the public.

Lenders do not see your "score", only your history.

MrsTinks

expanding on that:

Lots of credit searches or new financial products is a change/possible indication that you're might be making financial changes or have problems. Some lenders will see this as a risk (others will not) and so the credit reference companies will attempt to reflect this in a "score" by using some algorithms. Is the score pointless - yes and no.

Yes - only you see the score on that screen.
No - because it can INDICATE there are factors which might be a flag to some lenders. The exact number however is rarely of any use to anyone, unlike a chocolate teapot which is at least made of chocolate and thus can be devoured...

I've recently opened a second current account with the SAME bank and with no over draft. And they STILL did a full search on me. I guess because it has the potential to go into an unauthorized overdraft? Annoying but they did tell me when I asked for the product. As I took our a new financial agreement less than 3 months ago my "score" took a hit as that's two searches in less than 3 months...

Give it a few months and they will bounce back again. Honestly - only use them as a "warning" system - like "WHOA it's dropped by 50%! What the heck happened!"

camaj

colinjd wrote: »

Morning,

Can anyone explain to me why an application for a new current account - and specifically with NO overdraft facility - means my credit score takes a hit?

Sounds like a hard search which means other lenders can see that you've been applying for credit elsewhere

GingerBob_3

camaj wrote: »

Sounds like a hard search which means other lenders can see that you've been applying for credit elsewhere

Even if you haven't.

YorkshireBoy

camaj wrote: »

Sounds like a hard search which means other lenders can see that you've been applying for credit elsewhere

Lenders will see "Application Type: Current Account". Their systems are clever enough not to see this as an application for credit as in credit card, loan, store card etc. I've previously successfully obtained 4 credit cards immediately following 18 successful current account applications over a 2-3 month period. Conclusion: as above, ignore the score!

GingerBob_3

YorkshireBoy wrote: »

Lenders will see "Application Type: Current Account". Their systems are clever enough not to see this as an application for credit as in credit card, loan, store card etc. I've previously successfully obtained 4 credit cards immediately following 18 successful current account applications over a 2-3 month period. Conclusion: as above, ignore the score!

But, does it say, for instance - "Application Type: Current Account £2000 overdraft requested". What other application types are listed?

YorkshireBoy

GingerBob wrote: »

But, does it say, for instance - "Application Type: Current Account £2000 overdraft requested". What other application types are listed?

Not in my experience. But check your own credit reports. As to your second question, see the help files on the CRA websites.