Experian - "New Credit Accounts" affecting score

CreditMasterYoshi

penners324 said:

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

The free version doesn't give all the exact details. It just says there's something negatively affecting your credit score in RED. But it won't tell you what it is without paying for the full report.

Nasqueron

CliveOfIndia said:

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.

Funnily enough, with the bold bit, I have seen an example of a small credit provider that had one of the custom scores from the CRA (the ones where they buy their own score rather than their own scoring system) and that was basically a "score > 700 = approve / score <500 do full credit check" - nothing to do with the gimmick score people see of course

Nasqueron

CreditMasterYoshi said:

penners324 said:

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

The free version doesn't give all the exact details. It just says there's something negatively affecting your credit score in RED. But it won't tell you what it is without paying for the full report.

You can get the statutory report for free, it's a legal requirement