Trying so hard to clear debt and being penalised

Mrscoombes03

Hi All,

So this year I decided I want to buy a house. I've been trying desperately to save, and clear off my loans and CC. All is going well. However my credit score seems to be dropping, monthly.

why is this?

ps to edit

I had two credit cards (now one) and one loan over five years (originally i had 4 years left in February however I have now cleared enough I have about a year left on it.

[Deleted User]

Because the score is fictional and has no meaning.

Ignore it and keep clearing your debts.

Dobbibill

Don't worry about the score - it is how the CRAs perceive you, not lenders.

Keep chipping away at the debt.

Nebulous2

You're doing the right thing. Keep saving for a decent deposit and paying off unsecured debt. The only niggle I have would be closing the credit card. Keeping it, putting a modest spend through it each month then paying in full would have been better.

Is the other credit card on a 0% offer?

sourcrates

Quote:
on what your credit score really means

By Martin | Edited by Johanna


If you've paid to get a credit score from one of the credit agencies, how reliable is it? We run through the truth about credit scores.

I’ve just found out that my credit score has dropped – should I be worried? Right, hold on there for a second. Actually, you don't have a credit score in the UK, you don’t have a credit rating, and there’s no such thing as a credit blacklist.
So, when you say your credit score has dropped – what exactly do you mean by that?

Well, I paid a credit reference agency to check my credit score and it's dropped. OK. So you went to one of the credit agencies – Equifax, Experian and Callcredit – and paid them a sum to get your 'credit score'. You'll get a score up to 600 from Equifax, up to 999 from Experian and up to five from Callcredit.

That's very common, and it's common to be confused about exactly what this is.

So I do get a score, but it's worthless? What you have to understand is this score doesn’t really mean that much. The first thing you need to appreciate is when you apply to a lender is that it will judge you based on three criteria.

Firstly, your application form details (which the credit reference agencies don’t have). Secondly, any past dealings you’ve had with that lender (which the credit reference agencies might not know). And thirdly, the information contained in your credit reference files (which the credit rating agencies do know).

So, the first thing to understand is that this score is based on incomplete information. The next thing to understand is different lenders are looking for different things, so they score you differently.

Just because one lender rejects you doesn’t mean another lender will do the same. The idea that this is all based on some simple score given to you by one of the credit reference agencies is false. At best, it's just an indicative guide to roughly how good or bad a risk you are.

In that case – why do they sell it to me? Well, the key word in what you’ve just said is ‘sell’. They sell it to you. Credit reference agencies used to make all their money from selling data to lenders. The idea was to help lenders predict your behaviour, which allowed them to assess whether or not you were a good person to lend to. They do that by deciding not just if you are a good or bad risk, but if you will be profitable or not.

Then some bright spark at the credit reference agencies realised they could generate a business called 'credit management'. It meant they could start to sell you all the other sorts of data and monitoring products for the first time and start making money from it. You ask why they sell it to you – well, it makes them money.

Does that mean it’s completely worthless and I should ignore it? No, I wouldn’t go that far. It's a loose indication of your rough creditworthiness, and certainly it's worth looking at the things they say are blemishes to see what you can do to improve your credit.
Where I think scoring doesn’t work is, for example, imagine you closed a credit card with a high credit limit that you'd had a long time, but didn't use any more. It's perfectly possible that your score would drop because a long relationship means it's a credit card that could give a good prediction of your behaviour.

But it also needs to be understood closing this would count as a positive for some lenders because you had less available credit.
The fact that your credit scorer has decided to reduce the score it gives you because you've cancelled that card doesn’t mean other lenders will do the same. Nor does it mean there's anything wrong.

OK – right, I understand. So what should I do to improve my credit? Well, it's important to think of this like a beauty parade. Just as everybody finds different people attractive – so do lenders.

There are general things you can do to 'rouge' up your credit appearance that make sense everywhere. As this guide's only 60 seconds long, I'm not going to go into that here. Instead, read the full Credit Scores guide.

It's very important to understand – this is art, not science.

What works for one lender won’t necessarily work for another – so there's no tried and tested right answer.

Samsung_Note2

What works for one lender won’t necessarily work for another – so there's no tried and tested right answer.

Well there is..pay your bills on time,dont take out huge amounts of credit and stay out of debt...lol

pvt

Mrscoombes03 wrote: »

However my credit score seems to be dropping, monthly.

why is this?

It's because the CRA don't have a clue about your real financial position. They don't know:

- How much you earn;
- What other income you have;
- What savings you have;
- What you want to borrow money for;
- What else you're spending money on.

The reason the score is dropping when your creditworthiness is improving is because their score is a guess extrapolated from what little information they have about you.

A mortgage lender would ask (and verify) all the above questions and come to an informed decision about whether you're a good risk for them to lend to.

The credit score you're fretting about is meaningless, worthless, and (based on your own observation) demonstrably nonsense. Also it won't be seen by any prospective lenders - not because the CRA isn't allowed to sell it, but because the lenders also know the CRA's 'score' is worthless bull and wouldn't touch it with a bargepole.

Hope that clarifies the situation.