Credit eligibility and scoring

Sleepless_in_London

Hi,

I recently applied for a credit card and although I was accepted I was given a very low limit. So low it did not make it worth sticking with the card as I solely applied for the Sign-up Bonus to earn Avios.

I am in an odd situation in that, in recent months, as a result of uncertainty in the economy, I decided to sell my assets and am now renting. I am renting because I had to move for my business.

As I pay myself very little, this low-income coupled with the fact that I am now renting an unfurnished property, most likely did not score well in my application (however on Experian it says I have a Very Good credit rating).

I did supply bank statements to show my situation is actually very far from my 'on paper' credentials, but it seems it was not taken into account so I decided to close my account.

Does anyone have any advice or suggestions on how to keep my profile 'low risk' when credit companies rate my eligibility?

Thanks in advance.

Nasqueron

Credit history takes time to build, the credit score/rating you get is a gimmick that no-one sees

Lenders score you on their own systems which is primarily around existing debt and income - if you have low income that will always cause problems as lenders don't consider things like savings

Sleepless_in_London

Thanks for your reply. I have just looked around online to read up on your comment about lenders not considering savings and see results like: 'Each lender has its own standards for how much you should have in savings, but they'll often want to see at least a few months' worth of payments in your account'. These past 12 months, I have a lot of payments, even rent payments received before I sold the properties those tenants rented as well as my own home in London.

Do you mean that the act of selling my assets and paying off cards and loans has reset my credit history, and now I need to rebuild it (which will take time)?

MorningcoffeeIV

Sleepless_in_London said:

Do you mean that the act of selling my assets and paying off cards and loans has reset my credit history, and now I need to rebuild it (which will take time)?

No. Your history doesn't get reset - it's a rolling 6 year view. 

 It means you are carrying less debt which is good from a lender viewpoint. But they will also be looking at your history of managing credit.

Home ownership gives an added element of stability in lenders' eyes. But your savings are irrelevant.

Sleepless_in_London

Thanks. That's odd then as I have always been on top of my bills and repayments. The only thing I can think of is that I might have had a few searches this year, but it is surprising if that's what has caused my available limit to be so low.

Nasqueron

Sleepless_in_London said:

Thanks for your reply. I have just looked around online to read up on your comment about lenders not considering savings and see results like: 'Each lender has its own standards for how much you should have in savings, but they'll often want to see at least a few months' worth of payments in your account'. These past 12 months, I have a lot of payments, even rent payments received before I sold the properties those tenants rented as well as my own home in London.

Do you mean that the act of selling my assets and paying off cards and loans has reset my credit history, and now I need to rebuild it (which will take time)?

 Savings you could spend tomorrow after you got the card, that is why they don't look at them.

When you apply, the lender checks whichever CRA they primarily use (Experian, Equifax, TransUnion) and look solely at the data on your account - things like if you have any defaults/missed/late payments which can mean instant rejection or a low credit limit/high APR. Conversely, if you have a solid history of paying cards in full (assuming not a promo rate), on time, paying a mobile phone bill etc then that looks good and you get better deal.

Rent is an income - so if you were a landlord and declaring your income, paying tax etc then you could use that as evidence of earnings. 

As above, your credit history is updated monthly and the last 6 years are kept - once something like a default or closed account is older than 6 years, it disappears. You selling assets doesn't change anything, it's just having a pot of money in the bank isn't an income so it would be ignored by the lender

Sleepless_in_London

Thanks for the info. That all makes sense and I 'get' what you're saying about someone being able to spend all of their savings - their earnings too, but I suppose that is how it is assessed, and it is what it is. I have a good record of paying on time and even had to produce a detailed credit report recently for something business related. As mentioned above, I wonder whether it is because I have had many searches.

Right, I had thought that rent earnings would have been taken into account, but apparently not in my situation. I suppose at this point, I feel as though it would be good to find out what it is that is holding my credit status/score back.

Thanks again.

Nasqueron

The main difference is simply that earnings, most people would use for their bills, and it's generally a safe bet you wouldn't voluntarily give up a job and lose your income, however, people can blow savings on a car or drugs or a holiday or give it away to relatives for inheritance tax reasons etc etc 

A lot of hard searches e.g. actually applying for credit will cause problems yes as it makes you look desperate for credit like you're trying to run up a load of debt or are struggling so will harm your chances. Some soft searches generally won't. The advice is generally wait 3 months between applying for credit 

Rent as an income should be taken into consideration yes, though if you sold the house and no longer have it, you can't

Sleepless_in_London

Okay, I'll wait for 3 months and will see how it pans out. I'm also looking into buying a place where I am now as being in a rental is not helping.

Nebulous2

Lenders like stability. Stable address, stable employment etc. 

Are you on the electoral roll at your new address? That could be a factor.