Heads up - Your Credit could be lowered by the banks

Hi all,

To those who've begun to establish credit in the UK after being here for some time, and are thinking about purchasing a property whilst the prices are 'low' - the following article shows what's happening currently whilst the markets are in freefall and trying to turn themselves back around.

The Banks are inadvertantly potentially reducing credit scores and increasing the likelihood of rejection based on credit searches done when applying for mortgages and loans etc

http://www.lovemoney.com/news/credit-reports/the-secret-way-banks-are-damaging-your-credit-rating-3798.aspx?source=1000417

As I mentioned in another recent post - clear out any unused and non needed accounts, and although many USA/Canadian immigrants will find it hard to get on the electoral roll, those who are planning to get permanent right to stay (is that ILR still?) should look to get on the electoral roll asap, whilst the UK and indeed, World markets get back on track again.

Hope this helps

Cheers, DtM! West London & Slough UK!

Just a claification on the electoral roll: Immigrants are solely US citizens can't join the electoral roll (even if they have ILR!), but those who hold citizenship of Commonwealth countries (including Canada) are eligible to vote and can be put on the electoral roll if they have a visa to live here.

We had a meeting with a mortgage advisor before this was in the news, and he gave us an estimation of what we could go for without any credit check. He mentioned it at the time, but I thought he was just bs'ing, but it turns out he was doing a good thing as peoples' credit reports are being impacted by this upfront credit check.

peoples' credit reports are being impacted by this upfront credit check.

It depends on what kind of credit check. There's nothing wrong with a lender running a information check, or, as I've heard it called in the US, a soft pull, to give you a quote. Those are the kinds of lookups that banks use to send all those pre-approval cards and offers and stuff. Those are visible to you on you report but to have an impact on your credit score. They dont actually need to do a hard pull (which does show up on your report and does lower your score) until they actually need to give you a commitment.

That they don't follow this practice is a complete and total BS.

There is a lot in the news tonight in the US about a change in rules for credit cards.

I was turned down last week for a British Airways Credit Card. I think it is issued by Citicorp.

My problem for credit is I pay my bills on time?

My problem for credit is I pay my bills on time?

Same here. I had a Capital One from 1999 to 2007 and for 4+ years I was in the UK and always maintained a small balance (to keep my credit score active), paid every month (quite often a lot more than the minimum payment) and was never late. Last December they raised my interest rate by 5% so I called and complained, the rep looked up my account and said "I see you have never been late nor gone over your limit, sorry though, we can't lower your rate back down". I said "fine, close it then".

I should have paid if off and keep it active as it was a high credit limit and just not had a balance (that is good for the debt vs. limit ratio) but I was not happy....they don't want good payers so I was more than happy to go elsewhere. Anyway, I paid the balance off and then I applied for a Citi card and got a zero interest rate for an entire year. (Not that they are any better than the other but I was happy to make the move).    

There is a lot in the news tonight in the US about a change in rules for credit cards.

I was turned down last week for a British Airways Credit Card. I think it is issued by Citicorp.

My problem for credit is I pay my bills on time?

Me too, Jim.

Same here. I had a Capital One from 1999 to 2007 and for 4+ years I was in the UK and always maintained a small balance (to keep my credit score active), paid every month (quite often a lot more than the minimum payment) and was never late. Last December they raised my interest rate by 5% so I called and complained, the rep looked up my account and said "I see you have never been late nor gone over your limit, sorry though, we can't lower your rate back down". I said "fine, close it then".

Makes NO sense to me.  Don't pay your bill, so here have some credit, but if you're careful with your money, forget it.  What the heck?

Well, I'll never have a mortgage in my life so don't need to worry about that, but there does seem to be a lot more freedom in what British lenders/creditors can do to customers v. what I experienced in the US.

Hiya

Thanks Springhaze! I sort of know that but it's a bit vague in my head, so I was coming from the 'financial' viewpoint only !

To Jim & Becca,
The credit card companies, just like ANY other company want to maximise profits - if you pay your balance off in full each month, you don't make them any money, therefore you 'effectively' become one of their 'normal' or 'non revenue producing' customers. You then don't usually get the offers or special treatment bits and bobs. Remember, Credit card companies make money when you DONT pay you're balance in full. So those who use their cards regularly and say dony pay back every month, they're the customers they LOVE! - so by you paying a higher rate of interest, IF you do miss a month, they 'make' some money off you.
Put simply - If you treat a Credit Card company as a Temporary Loan, i.e 'Free' Money for a month, then they don't make any money from you so you don't go into their 'good books' so to speak!

Lastly - things will change here with banking - I got a letter from Amex, and they're introducing a 'Dormancy Fee' - so if you have  card and don't use it, they'll charge you for it! small things like that, which will all add up.

Cheers DtM!  West London & Slough UK!

"You're a bad customer if you pay your bills on time and in full" is a myth and a stupid one. You certainly don't make them AS much money as someone at a low risk of default but who is carrying a balance every month, but you're still a valuable customer. They still make plenty off you in transaction fees. And you're certainly a more desirable customer than the big spender who's at a higher risk of default.

That's why the dormancy fees: when you don't use the card, then it's probable you're losing them money although that is still not certain.

Same here. I had a Capital One from 1999 to 2007 and for 4+ years I was in the UK and always maintained a small balance (to keep my credit score active), paid every month (quite often a lot more than the minimum payment) and was never late. Last December they raised my interest rate by 5% so I called and complained, the rep looked up my account and said "I see you have never been late nor gone over your limit, sorry though, we can't lower your rate back down". I said "fine, close it then".

I should have paid if off and keep it active as it was a high credit limit and just not had a balance (that is good for the debt vs. limit ratio) but I was not happy....they don't want good payers so I was more than happy to go elsewhere. Anyway, I paid the balance off and then I applied for a Citi card and got a zero interest rate for an entire year. (Not that they are any better than the other but I was happy to make the move).    

Two points on Capital One. Firstly, all their credit changes are done by software; reps simply don't have the ability to change your interest rate/credit limit etc over the phone. Secondly, there's no doubt in my mind that Capital One target people who they think will generate most fees/interest. My college attending daughter with almost zero income got a higher credit limit from them than myself with an 800+ credit score and six figure income. My riposte to them is to make one tiny recurring charge a month, get paper bills, and only use the card otherwise when outside the US - the only reason I got a C1 card is because they don't surcharge foreign transactions.

the only reason I got a C1 card is because they don't surcharge foreign transactions.

Wow, they don't??  This is good to know! Thanks.

"You're a bad customer if you pay your bills on time and in full" is a myth and a stupid one.

Thank you Mort. I'm fortunate to be informed by you.

Here we go again. Insults on the web.

Hiya
To Jim & Becca,
The credit card companies, just like ANY other company want to maximise profits - if you pay your balance off in full each month, you don't make them any money, therefore you 'effectively' become one of their 'normal' or 'non revenue producing' customers.
Cheers DtM!  West London & Slough UK!

Dennis,
First of all I want to say I always enjoy your posts.

About this post I assume you are talking in generalities right?

I do about 99% of my transactions by American Express credit card and I pay it off the next month.  You don't think I make them money?

I use to frown on a business friend of mine who use to charge amounts as small as a $1
on his card but now I see why and I'm down to doing the same thing. Now if we all quit doing this CC companies would be in a sad shape.

Having said that (and I frequently talk out of both sides of my mouth, if that expression means anything to you) I see the merits of everyone paying cash. Prices would be lower but then a lot of people would loose their jobs because money would move slower.

Denis I would think you have studied economics and understand about how an economy prospers when money moves fast?

Hi Jim

I've not 'studied' economics at all..

I guess I should re-phrase a bit .

When you use a credit card AND pay the balance off prior to the month end, you make the credit card companies MUCH LESS money. In the practical sense from the Consumer side (you and I) it's 'effectively' free money that you've borrowed for upto around 28 days. The Credit card company view - You used some of THIER money (ie the balance) and then you paid them back BEFORE the end of the month. So they think, ahh, they're a customer using US to THEIR advatange.

Now the other way, those who DON'T pay back their balance at the end of the month - Consumers view - balance of £250 and now over 1 month and their's circa 17% interest to add which makes a balance of £292 quid (these are very very simplistic figures just to highlight the point) so customer now has to 'Pay the credit card' company about £40 charges to 'borrow money from them'

Credit card company view - wow what an EASY way to make alot of money, we didn't have to do anything and we've earnt 40 quid of that person this month!
So, those who payback on time each month are NOT the favourite customers of the Credit Card companies, those who hold a balance each month ARE!
Of course, if you're cashflow and way of working is to allow one month of interest to be added - then fine. The reason all the money websites advise not to do that is it's so tempting to rack up debts and charges and 'worry about it later' and as we all know, is the major reason behind the current financial meltdown.

Cash is king - however you must remember Cash is simply a piece of paper with a 'Percieved' value placed on it. It's the reason UK banknotes have written on them 'I promise ot pay the bearer the sum of X pounds' - in essence it's simply a 'promise you'll pay x amount' - also , if everything was cash as you suggest, there'd be the need to make some 10,000 square foot storerooms in some peoples houses  simply to store all they have !


Lastly Jim, Mort did not insult you ! -

Cheers! DtM! West London & Slough UK!