Why is my score this low? Please help!

[Deleted User]

lizferris1984 wrote: »

It was a £500 loan not £5000. In terms of repayment, it's not going to take long to pay this back. I don't see why it's so terrible to put it bluntly.

People are advising you it looks bad because it tells lenders you have no savings and need to borrow small amounts.

If you can build up savings and avoid borrowing, it will help you enormously in how you appear to lenders.

lizferris1984

Deleted_User wrote: »

People are advising you it looks bad because it tells lenders you have no savings and need to borrow small amounts.

If you can build up savings and avoid borrowing, it will help you enormously in how you appear to lenders.

What happens if it's paid off in full soon though, as well as the default? Because there's a good chance that might happen.

I can understand why it would look bad if I was in a lot of debt versus my income, and I was missing payments. The fact is I am not. Surely to build credit you need to have some credit accounts and make payments on them regularly?

I am in process of building up savings. I did state too that I wouldn't make any more applications for at least a year. I don't have any plans to apply for anything else before this point at least. There's a good change default & loan will both be paid up before that happens.

NB: my total amount of debt has gone DOWN since orginally posting NOT up. The amount paid off using my own money is HIGHER than the total interest on the loan. So I now owe less not more.

It is unlikely I won't pay the loan in full before the end of the term.

[Deleted User]

Paying it off soon would be a very good idea.

You never have to pay interest to build credit. That's what credit cards are for.

It's up to you how you approach it. But the fact remains that people who need to borrow small amounts and pay interest are deemed higher risk.

lizferris1984

Deleted_User wrote: »

Paying it off soon would be a very good idea.

You never have to pay interest to build credit. That's what credit cards are for.

It's up to you how you approach it. But the fact remains that people who need to borrow small amounts and pay interest are deemed higher risk.

Yes I can see that generally! Basically when I did this, I weighed the pros and cons. There were some advantages to taking the loan. I can why it'd seem like an odd decision at face value, but I won't be doing it again any time soon.

I do intend to pay off loan before the term is up - there's a high chance I can do this with some money I have coming in later this year, and pay the other default too.

I see your point about credit cards - I only have one and it's £0 balance. So I can now use this & pay it off each month, in the way that's been recommended.

I understand paying interest doesn't build credit - but I assumed regular, reliable payments on a credit account would.

[Deleted User]

lizferris1984 wrote: »

I understand paying interest doesn't build credit - but I assumed regular, reliable payments on a credit account would.

There are many aspects to building a good credit profile.

Making repayments is one, but affordability is also key.

Paul_DNAP

lizferris1984 wrote: »

It was a £500 loan not £5000. In terms of repayment, it's not going to take long to pay this back. I don't see why it's so terrible to put it bluntly. I am simply not in a large amount of debt versus my income, so why the panic.

But in terms of how it reflects on credit reference, and relating to the titular query "why is my score this low" - a loan for a low amount over a short term will flag up more negatively as it is the sort of product that people who aren't in control of their daily finances turn to when they mess up the monthly budget.

vacheron

lizferris1984 wrote: »

It was a £500 loan not £5000. In terms of repayment, it's not going to take long to pay this back. I don't see why it's so terrible to put it bluntly. I am simply not in a large amount of debt versus my income, so why the panic.

lizferris1984 wrote: »

NB: my total amount of debt has gone DOWN since originally posting NOT up. The amount paid off using my own money is HIGHER than the total interest on the loan. So I now owe less not more.

It is unlikely I won't pay the loan in full before the end of the term.

The problem is the suggestion that small loans and overdrafts give to lenders, especially as they can't see anything regarding savings amounts.

Consider 2 work colleagues:

• "A" owes £10,000 to other colleagues but has paid those colleagues off religiously whenever they have requested repayment for at least the last six years without fail. They have no savings, but you don't know this.
  
  
• "B" owes £500 to colleagues but this has recently reduced this to £300, however they have failed to the money back when requested a few times since borrowing it, they also ask to borrow an extra £100 for a few days every now and again and will pay them back £120 if they help them out. You would assume this is to make ends meet as they don't have any savings. They actually have £20,000 in savings... but you don't know this either.

Given the above, "A" is in far more debt while "B" has savings and their debt has reduced. But which person would you feel you'd trust more to repay all your money on time, based only on the evidence available to you?

phillw

vacheron wrote: »

Glad you are making progress, but just to prove how utterly worthless credit "scores" are, here is mine when I logged into the MSE credit club just 5 minutes ago:

They are worthless to you, but someone who has a credit score of 0 may not be able to grasp the full meaning of their credit file without the score.

My score of 969 appears to be scuppered by

"Account stability
The average length of your financial relationships is less than six years. Remember, this isn’t just bank accounts, mortgages, loans and credit cards, it can include utilities, mobile phone contracts, broadband and more.

Stability is attractive to lenders, but it's a minor point, and on its own is unlikely to scupper your acceptance chances. So don't be too scared of switching if there are better deals out there. That's the point of having a good credit score – it enables you to apply for better and cheaper products."

I do think that is a bit weird, especially on MSE.

[Deleted User]

phillw wrote: »

..."That's the point of having a good credit score – it enables you to apply for better and cheaper products."

That made me LOL

lizferris1984

Paul_DNAP wrote: »

But in terms of how it reflects on credit reference, and relating to the titular query "why is my score this low" - a loan for a low amount over a short term will flag up more negatively as it is the sort of product that people who aren't in control of their daily finances turn to when they mess up the monthly budget.

I can see why it would create this impression, definitely. But in my case - not being in control of my budget wasn't the reason I took the loan. I actually have very good budget control, I write down a budget every month religiously, to check what is coming in & what is being paid out. I understand that no one can else can see this, but I obviously know in myself I am not out of control, and for that reason I know a short term loan won't be a repeat occurance!

I broke an egg to make an omlette, essentially. I don't feel bad about it because it wasn't impulsive.