Experian - "New Credit Accounts" affecting score

CreditMasterYoshi

Hello everyone,

In September I renewed my car insurance and selected to pay monthly. I noticed this month that on my Experian, my credit score tanked by -120. I paid to subscribe to the full version of Experian and it stated that because I created a new credit account with my car insurer, my credit score tanked. 

My credit balance is roughly £800 now with the car insurer, which I can easily pay off in full. So my question is, should I continue to pay it off monthly and settle the credit over the year to increase monthly payments? Or should I simply just pay it off in full to settle the account? 

Which option would be best for my credit score to recover and improve?

Thank you

DE_612183

Why are you worried about your credit score?

Lenders don't see it just your credit agreements.

CreditMasterYoshi

DE_612183 said:

Why are you worried about your credit score?

Lenders don't see it just your credit agreements.

All the banks websites (Lloyds, HSBC etc) I've checked and all people I speak to say that "A higher credit score could mean you’re more likely to be accepted when you apply for credit".

Genuine question, is this not the case?

DE_612183

CreditMasterYoshi said:

DE_612183 said:

Why are you worried about your credit score?

Lenders don't see it just your credit agreements.

All the banks websites (Lloyds, HSBC etc) I've checked and all people I speak to say that "A higher credit score could mean you’re more likely to be accepted when you apply for credit".

Genuine question, is this not the case?

A higher credit score is a rough reflection of your credit worthiness - but banks don't check the score. ( as a matter of fact the 3 main credit agencies all have different ways of calculating the score ).

They all have their own ways of checking credit worthiness.

So if you have a score of 999 you could still be refused a mortgage.

Your "new" account is unlikely to affect your ability to get a mortgage, other than the fact that your monthly disposable income is now slightly less than it was a few months ago....

TadleyBaggie

No one (except you) sees the credit score published by Experian and the other CRAs. Financial institutions will do their own credit scoring based on the credit history. Obsessing about a number no one else sees isn’t healthy. 

CreditMasterYoshi

TadleyBaggie said:

No one (except you) sees the credit score published by Experian and the other CRAs. Financial institutions will do their own credit scoring based on the credit history. Obsessing about a number no one else sees isn’t healthy. 

DE_612183 said:

A higher credit score is a rough reflection of your credit worthiness - but banks don't check the score. ( as a matter of fact the 3 main credit agencies all have different ways of calculating the score ).

They all have their own ways of checking credit worthiness.

So if you have a score of 999 you could still be refused a mortgage.

Your "new" account is unlikely to affect your ability to get a mortgage, other than the fact that your monthly disposable income is now slightly less than it was a few months ago....

Thank you guys for the response. I think I'm just misinformed as to how the whole process works and what gets taken into consideration etc. I appreciate the insight.

I guess I'll stick to the monthly payments as it just builds good credit in general.

Nasqueron

CreditMasterYoshi said:

TadleyBaggie said:

No one (except you) sees the credit score published by Experian and the other CRAs. Financial institutions will do their own credit scoring based on the credit history. Obsessing about a number no one else sees isn’t healthy. 

DE_612183 said:

A higher credit score is a rough reflection of your credit worthiness - but banks don't check the score. ( as a matter of fact the 3 main credit agencies all have different ways of calculating the score ).

They all have their own ways of checking credit worthiness.

So if you have a score of 999 you could still be refused a mortgage.

Your "new" account is unlikely to affect your ability to get a mortgage, other than the fact that your monthly disposable income is now slightly less than it was a few months ago....

Thank you guys for the response. I think I'm just misinformed as to how the whole process works and what gets taken into consideration etc. I appreciate the insight.

I guess I'll stick to the monthly payments as it just builds good credit in general.

They use credit score as it's a simpler term than explaining what credit reports/history is

If you pay insurance monthly, you are taking out a "loan" from the firm and paying it back, hence why it appears on your credit report. It's not like a commercial loan for the most part but it is credit. To build a good credit report, the easiest things are to be on the electoral roll, get a credit card, spend on it and pay back in full every month after the statement, get a phone contract (even sim only). Just keep doing that and your score will recover but more importantly (as the score doesn't matter) you build a good credit profile that lenders will like.

CliveOfIndia

Realise I'm repeating some of what's already been said, but to try and address your specific questions:

CreditMasterYoshi said:

In September I renewed my car insurance and selected to pay monthly. I noticed this month that on my Experian, my credit score tanked by -120. I paid to subscribe to the full version of Experian and it stated that because I created a new credit account with my car insurer, my credit score tanked.

Yes, the score generated by the CRAs is meaningless, and will drop in reaction to any change in your credit circumstances - whether good, bad, or indifferent.  When you pay for insurance monthly, the insurance company lend you the year's premium and you repay it monthly, so it's simply a loan - no different to if you took out a personal loan to pay for the year's insurance.

CreditMasterYoshi said:

All the banks websites (Lloyds, HSBC etc) I've checked and all people I speak to say that "A higher credit score could mean you’re more likely to be accepted when you apply for credit".

Genuine question, is this not the case?

A lot of front-line customer service people at banks etc. don't fully understand every nuance of financial products.  It's true that a higher score will improve your chance of being accepted for credit - but they are referring to their own internally-generated score.

Basically, a lender pays the CRA to get your data, they feed that data into their algorithms, and their computer spits out a score.  Each lender will have different lending criteria, a different risk appetite, a different target customer base, so their scoring criteria will be very different from one another.  And their internal scoring criteria are confidential and commercially-sensitive, so no-one other than their risk-management department will know what those criteria are, or what score they give you.

But the score dished out by the CRAs plays no part whatsoever in lending decisions - in fact, it's not even visible to lenders.

CreditMasterYoshi said:

TadleyBaggie said:

No one (except you) sees the credit score published by Experian and the other CRAs. Financial institutions will do their own credit scoring based on the credit history. Obsessing about a number no one else sees isn’t healthy. 

DE_612183 said:

A higher credit score is a rough reflection of your credit worthiness - but banks don't check the score. ( as a matter of fact the 3 main credit agencies all have different ways of calculating the score ).

They all have their own ways of checking credit worthiness.

So if you have a score of 999 you could still be refused a mortgage.

Your "new" account is unlikely to affect your ability to get a mortgage, other than the fact that your monthly disposable income is now slightly less than it was a few months ago....

I guess I'll stick to the monthly payments as it just builds good credit in general.

Well, yes, paying your monthly premiums on time will go some small way to building a good credit history (which is what really counts).  But it's an expensive way of doing it.  If you're able, it's far better to pay your insurance premiums in one lump sum, it's pointless to pay interest if you don't have to.

In terms of maintaining/building your credit history, correct usage of a credit card - as noted by the previous poster - is a much simpler way of doing it.  And it also has the benefit of costing you nowt.

CreditMasterYoshi

CliveOfIndia said:

Well, yes, paying your monthly premiums on time will go some small way to building a good credit history (which is what really counts).  But it's an expensive way of doing it.  If you're able, it's far better to pay your insurance premiums in one lump sum, it's pointless to pay interest if you don't have to.

In terms of maintaining/building your credit history, correct usage of a credit card - as noted by the previous poster - is a much simpler way of doing it.  And it also has the benefit of costing you nowt.

Thank you so much for the insightful response.

One last question I had. Does opening this credit line with my car insurer affect my "Length of credit history"?. If I was to pay off my current car insurance in full now (after paying monthly the passed two months), will this negatively impact my credit score again since I will be settling account and it will be a low lengthed credit account if that makes any sense? Sorry for any confusion

Thanks!

CliveOfIndia

CreditMasterYoshi said:

CliveOfIndia said:

Well, yes, paying your monthly premiums on time will go some small way to building a good credit history (which is what really counts).  But it's an expensive way of doing it.  If you're able, it's far better to pay your insurance premiums in one lump sum, it's pointless to pay interest if you don't have to.

In terms of maintaining/building your credit history, correct usage of a credit card - as noted by the previous poster - is a much simpler way of doing it.  And it also has the benefit of costing you nowt.

One last question I had. Does opening this credit line with my car insurer affect my "Length of credit history"?. If I was to pay off my current car insurance in full now (after paying monthly the passed two months), will this negatively impact my credit score again

Yes, it will affect your credit score, it'll drop since it's a change in your credit circumstances.

But, please, as has been said many times already - IGNORE YOUR CREDIT SCORE, IT MEANS ABSOLUTELY NOTHING !!!

In terms of your credit history, it'll have a miniscule/bordering on zero effect.  By definition, car insurance paid monthly is a one-year loan, which is small potatoes in the grand scheme of things.

Must admit, I've never investigated paying off the remaining term after having paid a few monthly premiums - I suspect it'll actually cost you more overall due to the fact the most car insurance companies seem to charge you for the slightest of changes.  By all means give them a call and ask, and if it'll save you a few quid then go for it.  And don't worry about any effect on your credit file, it'll be meaningless in the grand scheme of things.

But going forwards, always pay for insurance (car, house, whatever) in one lump sum if you're able to, it'll save you paying interest.  Insurance paid monthly will have such a negligible effect on your credit file that it's not worth even considering - saving money, in this scenario, is of much greater concern.

penners324

Why are you paying for Experian when there's a free version that gives the same information?