Is rent including bills damaging my score?
in Credit file & ratings
11 replies 384 views
My credit report by the MSE credit club shows low disposable income. While I’m not exactly rolling in money, I also wouldn’t say I’m struggling. So I wondered if this was partly because when I enter my rent payments it looks high relative to income - however it includes all my bills. So while that expense is higher, none of my income is then spent on bills, which doesn’t seem to be taken into account.
I was wondering if I’ve misunderstood, and this is somehow factored in, or is it possible this is making my affordability score unfairly low?
I only started looking into this when a current account application of mine was rejected, but I don’t know if it’s related given it’s not a credit product.
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Is all the data held by the CRA's correct? It is the data and facts that lenders use, not the "score" you can see on the free applications.
TL;DR - your MSE affordability score is largely meaningless and can be ignored.
Full explanation: You need to separate out your credit report and your affordability score - they are 2 different things.
Your credit report only looks at your past behaviour and trends regarding credit accounts - i.e. questions like have you missed payments recently? Do you have a lot of debt? Is your credit card utilisation high? Do you have CCJs etc. It doesn't include things like your income and also doesn't include rent (though it would include mortgages if you had one).
Therefore, it CANNOT include all the information needed for an affordability assessment.
The affordability check is something that a lender would have to do when you apply for a credit product - this information is not held by the CRA (see above), therefore it is not part of your credit report - the affordability check is performed by the provider you're applying to based on information you have to give them as part of your application.
The MSE affordability score is just an indication to say that - based on the info you've given MSE - they think it's quite low and you MAY have issues in the event that you apply for a credit account. In practice, the MSE affordability score is meaningless as any future provider you apply to will do their own affordability assessment when you make the application - at which point, you will be able to offer additional info such as the fact your rent includes bills.
When you apply for a credit account the provider will look at both your credit report (NOT your score), the information on your application (which includes the information required for them to perform an affordability check) and any history you have with them (if applicable). They will then assess your application against their own criteria before deciding on whether to accept your application (or to vary the terms of it).
Credit / affordability score meaning
Both your MSE affordability score and your CRA credit score are meaningless as far as the rest of the world is concerned (no-one else sees them) - they are only there as a quick reference to highlight FOR YOU, AND YOU ALONE whether there MAY be an issue.
Your credit score number will put you into a category (usually poor, fair, good, very good or excellent). If good or excellent, you probably don't need to check your report. If lower, then you should check it to understand what in your report is dragging your overall score down. There may be an issue you weren't aware of, or a mistake in the information you can get rectified - whatever, the score is there to highlight that there is an issue so you can investigate.
For example, my own score went from excellent to poor overnight - but it was because I'd moved house and the address on my report no longer matched my address on the electoral register (a big red flag for anti-fraud rules). Updating my address on my report to the correct one fixed my score.
Your MSE affordability score is basically pre-empting what a lender would look at if your were to make an application. MSE don't know what lender you may apply to - and even if they did, MSE don't know what criteria that lender uses - and no lender will see your MSE afforability score (even if they did, they are legally required to perform their own assessment when you apply (even if they weren't legally required to, no financial company is going to rely on a 3rd party/CRA to make an assessment on their behalf since the CRA isn't risking their own money by providing you with whatever account you have applied for).
Where it does come in useful is for reviewing your own general affordability status to pre-empt any questions you might get from a provider you have applied to - and if it's looking wrong to you then understanding why (which is exactly what you've done).
The best description I was given was this. The financial services market is simplyh a casino for credit providers. Every application is a request for the provider to gamble their money on a specific risk (the applicant). By looking at your credit report and assessing your affordability they are simply trying to avoid bad bets.
I can think of 2 obviosu reasons a current account application could ber rejected (though I'm sure there are many more)....
1 - there is a potential credit element. For example, a First Direct current account comes with a free £250 overdraft (I'm sure other accounts do too).
2 - even if there is no credit element, the credit file will still be checked (likely a soft search, so no impact on your credit score) as part of the KYC/AML process (Know Your Customer / Anti Money Laundering - basically making sure the applicant really exists and is who they say they are).
I've heard of instances where applications have been rejected because there was a typo on the DOB or address of the applicant when entering data on the application form, so the computer couldn't match the application with a real person/credit file and auto-rejected them.
The only advice they could give, if you asked up front, would be to reduce the rent by an estimate of what your bills would be. I can't see you getting their estimate out of a customer service agent (this assumes they haven't asked for your share of utility bills etc). You won't know it's a problem until they rejected you, gone are the days when you could talk someone round overriding the computer & entering a different value for a subsequent application is going to raise more flags.
I'd just always reduce the rent by the estimated bills anyway, especially for MSE credit club.
If you artificially reduce the rent and guess at the utilities element you are knowingly entering incorrect/inaccurate information which is *technically* fraudulent (though realistically I doubt it would ause any real issues in the unlikely event it was spotted).
If the application form only requests a totalling of income and expenditure there is obviously no need to split it out anyway, so it's a moot point.
If applying for a mortgage you'd need to demonstrate future afforability too, so then you would add estimates of utilities costs on top of the cost of the mortgage you're applying for (and drop the rent element, of course).
The MSE affordability score is meaningless in terms of any decision a lender makes so it's up to the OP whether they bother trying to massage the figures on that. Personally, I wouldn't bother since they seem to be pretty comfortable with their finances and have already pointed out where the likely gap in the MSE affordability score and their own estimation is.
Plus, any lender will make their own judgement on affordability based on information entered into the application form (and the cost of whatever product is being applied for) - and since MSE cannot know what criteria will be used by whatever lender it is, the MSE score is only a semi-educated guess anyway.
Obviously if they do ask for utilities, then you don't need to do anything special. MSE doesn't ask.
I doubt if they are worried about affordability that they are in the position of buying a house, but obviously they will need to estimate what their utilities are going to be in the first house they buy. Entering £0 is going to cause all manner of issues when trying to apply for a mortgage.
The full quote from my comment is "the MSE affordability score is meaningless as any future provider you apply to will do their own affordability assessment when you make the application - at which point, you will be able to offer additional info such as the fact your rent includes bills."
You just chose to misrepresent what I said by only quoting the highlighted part.
I stand by all of my comments.