Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Meren Talk's
Speaker 1: Your Money, the personal finance edition of Merin Talks Money.
Speaker 1: In these bonus podcasts, we talk about the best strategies
Speaker 1: for making the most of your money. I'm Merrin Sumset
Speaker 1: Web and with me senior reporter and Money Distilled offer
Speaker 1: John's Effect. Hi John, Hi mel Right. This week we
Speaker 1: are tackling a topic suggested by Tala, an apprentice here
Speaker 1: at Bloomberg who's been working on our team the last
Speaker 1: few months. Tala is in her early twenties and says
Speaker 1: the surprisingly frequent topic among her friends is credit scores.
Speaker 1: I don't really have a credit history yet, how would
Speaker 1: my credit score be determined? What fuck does go into
Speaker 1: determining my credit score?
Speaker 2: And how do I even check my credit score? I've
Speaker 2: noticed that when I check my credit score on different websites,
Speaker 2: they vary.
Speaker 1: Why is that I'm a bit lost by this when
Speaker 1: I literally do not remember ever talking about credit schools
Speaker 1: in my twenties.
Speaker 3: John, No, but then we were plevileaged. Because the nineties
Speaker 3: one a much better him for young people in general.
Speaker 3: We don't have to worry about money really, because someone
Speaker 3: was so cheap.
Speaker 1: Yeah, we could buy houses.
Speaker 3: Yeah, we could buy hosts.
Speaker 1: Aside the fact that the taller and everyonends are caring
Speaker 1: about credit school maybe they're looking out mortgages. We'll talk
Speaker 1: about that later anyway. So the question is how do
Speaker 1: credit schools work? What are they? Do I have one?
Speaker 1: Do I have several? How important is it? What does
Speaker 1: it mean, what affects it the most? And how do
Speaker 1: I make it good? So lots of questions here, some
Speaker 1: of which John and I could answer alone, some of
Speaker 1: which we quite clearly couldn't. So we've bought an expert
Speaker 1: to help uts go through all the basics of this subject,
Speaker 1: John Webb. John is the senior consumer refairs manager at Experience. John,
Speaker 1: thank you so much for joining us today.
Speaker 2: Oh glad to join.
Speaker 1: So right back in the beginning, what is a credit school?
Speaker 2: There is not one credit score. So your credit score
Speaker 2: is a number that is given to you by credit
Speaker 2: reference agency like Experience, and there are others as well.
Speaker 2: Equifax and TransUnion are the other two. So there's three
Speaker 2: main credit reference agencies, and we will all give you
Speaker 2: a number and it's a summary of the performance of
Speaker 2: your credit report. So all the information that's on there,
Speaker 2: how you've managed credit in the past six years or so,
Speaker 2: and how much debt you are in, for example, right now,
Speaker 2: and the number gives you a good indication of how
Speaker 2: a lender will judge the information on your credit report
Speaker 2: when you apply for credit.
Speaker 1: Okay, so this is a number. What is a good
Speaker 1: number and what is a bad number?
Speaker 2: Well, that's an interesting question because there is not one
Speaker 2: credit score. Don't judge the numbers side by side. Each
Speaker 2: credit reference agency will give you their own experience. Is
Speaker 2: out of nine hundred and ninety nine, So we will
Speaker 2: give you a banding to say, you know, somewhere along
Speaker 2: the lines of you're somewhere in the good or very
Speaker 2: good or excellent category, for example, and your number just
Speaker 2: summarizes it gives you a really good indicator of where
Speaker 2: you sit on that banding. And you know, that's how
Speaker 2: a lender will really look at that information say okay,
Speaker 2: you know what we do. Think that's good and that's
Speaker 2: how we base that number.
Speaker 1: Okay, So you're out of nine hundred and ninety nine.
Speaker 1: Equifax and TransUnion are out of different numbers. So Eqfacts
Speaker 1: I think is out of one thousand and TransUnion it's
Speaker 1: slightly lower out of seven hundred and ten.
Speaker 2: Yeah, well, don't compare them side by side. It's good
Speaker 2: to check them all and you can do it for free,
Speaker 2: so you know, please do, but don't compare them side
Speaker 2: by side and say, right, my experience score is this?
Speaker 2: Why is my TransUnion score so low? Just view them
Speaker 2: individually and see how you sit on the banding with
Speaker 2: those credit reference agencies.
Speaker 1: Okay, And do any other organizations have credit scores for us?
Speaker 1: I mean, for example, does my bank have a credit
Speaker 1: score for me? Does my mortgage holder I have a
Speaker 1: credit score for me? Are there other numbers around the
Speaker 1: place that aren't with these three main unions?
Speaker 2: Yes? Well, just to make this, you know, even easier
Speaker 2: for you, there are different numbers, but you will not
Speaker 2: ever see those numbers. The only time the other number
Speaker 2: is generated for you is when you apply for something.
Speaker 2: So you'll apply, they will check the information on your
Speaker 2: credit report plus your application form information, so really your affordability, salary, dependents,
Speaker 2: other expenses and so on, and perhaps if you bank
Speaker 2: with them already their own information and at that point
Speaker 2: you apply, they'll generate a score for you. That's the
Speaker 2: score that determines do you get accepted or not? What's
Speaker 2: the interest rate going to be? What's the limit going
Speaker 2: to be? But they don't tell you what that number is,
Speaker 2: so you know, you'll know you were good enough if
Speaker 2: you get accepted and get the good rates, you'll know
Speaker 2: you are borderline if maybe the interest rate goes up
Speaker 2: a bit at the end, or you don't quite get
Speaker 2: the limit you want.
Speaker 1: Okay, all right, very useful, and I suppose the next
Speaker 1: obvious question to ask is how are those scores built.
Speaker 1: What goes into the building of the score. What are
Speaker 1: the agencies looking at?
Speaker 2: The score is built on lender feedback, so they tell
Speaker 2: us the credit reference agencies what's important, so you know
Speaker 2: what's important in terms of your payment history if you've
Speaker 2: made them on time, or in terms of the amount
Speaker 2: of debt you have missed payments, court judgments. There's lots
Speaker 2: of information that goes into calculating the score, but it's
Speaker 2: based primarily on how we work with and experience hundreds
Speaker 2: of lenders to figure out exactly what's important and how
Speaker 2: we build that score.
Speaker 1: Okay, so your school will be good if you have
Speaker 1: borrowed money always paid it back on time effectively.
Speaker 2: Yeah, A good track record of managing credit. So you've
Speaker 2: had some sort of credit agreements in the past, you've
Speaker 2: paid them on time, and possibly in an ideal world,
Speaker 2: you have paid them off and closed them successfully. And
Speaker 2: then that's kind of how you build your track record
Speaker 2: of managing credit well, and that leads to generally a
Speaker 2: good score. There are other things that obviously impact it,
Speaker 2: so you know not just that, but how much current
Speaker 2: debt you are in, for example, will have a big influence.
Speaker 2: If you've got credit cards, how much you're borrowing on
Speaker 2: those and how close you are to the limit and
Speaker 2: so on. So your current debt levels have a big
Speaker 2: impact on your score as well. But the history is
Speaker 2: really important.
Speaker 1: Okay, I think there's an obvious question that comes out
Speaker 1: of that. I want to ask the obvious question first
Speaker 1: and then move on to asking you what makes your
Speaker 1: credit rating bad. The first question is if you are teller,
Speaker 1: for example, you asked us this question and you're in
Speaker 1: your early twenties and you have never borrowed money before,
Speaker 1: that means you don't have a credit score at all,
Speaker 1: or it means you have a bad credit score.
Speaker 2: It's no, it doesn't necessarily mean you have a bad
Speaker 2: credit score, So they're kind of what we call a
Speaker 2: thin file, so where you just have very limited information,
Speaker 2: which means the lender can make very little judgment about
Speaker 2: how well you'll manage credit. So you know, we always
Speaker 2: kind of talk then about the process of building your
Speaker 2: credit history, and it's kind of step by step process
Speaker 2: of getting some sort of information onto your credit report,
Speaker 2: managing it well through those credits, and then building it
Speaker 2: over time.
Speaker 3: There's anything you can do to boost the law, I mean,
Speaker 3: it's something that obviously had about is make sure you're
Speaker 3: in the electoral register or the voters roll and exactly.
Speaker 3: You know, because as far as the first thing you
Speaker 3: get crear that you don't like to be going for
Speaker 3: a mortgage, I mean to having a mobile phone contract,
Speaker 3: help all of these sorts of things.
Speaker 2: Yeah, it does, actually, and it's a good point because
Speaker 2: in terms of building it, let's say, almost from scratch,
Speaker 2: getting on the electoral role is probably the first thing
Speaker 2: that I would suggest people do. So wherever they can,
Speaker 2: of course, get registered on the electoral role. That's your
Speaker 2: first bit. Your next bit is having a bank account.
Speaker 2: It doesn't matter if it's got an overdraft, but as
Speaker 2: long as you've got a bank account, it'll add some
Speaker 2: information on there, but don't have any problems with it
Speaker 2: if you can, so try not to go into unarranged
Speaker 2: borrowing and so on that can cause an issue. And
Speaker 2: then the next stage would kind of be thinking about
Speaker 2: getting a credit card. And that's because if you use
Speaker 2: that in the right way, and perhaps we'll talk about
Speaker 2: that in a moment, is they're quite easy to get
Speaker 2: and if you use them in the right way and
Speaker 2: pay them off in full, you don't pay the interest
Speaker 2: on it, and suddenly you've got a couple of accounts
Speaker 2: plus electoral role, you're building up some positive information on
Speaker 2: your credit reports. That's a great way to start that process.
Speaker 1: I think we had better go straight into what is
Speaker 1: using a credit card the right way? I mean, I
Speaker 1: think we would think using a credit card the right
Speaker 1: way is buying stuff with it, you know, of not
Speaker 1: being any interest. But you said that already. Is there
Speaker 1: something else involved in the right way?
Speaker 2: Well, it's just to do with the balance and how
Speaker 2: you use it on there. And of course this is
Speaker 2: the right way for you know, me as a credit
Speaker 2: reference agency, let's say, because what we want to see
Speaker 2: and what a lender likes to see is a very
Speaker 2: low balance but an active account. So the way to
Speaker 2: do that is spending a few pounds every month on
Speaker 2: something you would have bought anyway. So try not to
Speaker 2: buy something that you wouldn't have wanted to buy normally.
Speaker 2: That's how you kind of get into problems. But spend
Speaker 2: it on something the food shop once a month, something
Speaker 2: like that, pay it off in full every month, so
Speaker 2: you don't pay the interest on it. And so if
Speaker 2: you keep the balance slow, you keep it active, you
Speaker 2: don't pay the interest. That's a great way to keep
Speaker 2: your credit card running. Of course, there are people who
Speaker 2: use credit cards to do their normal spend on that's
Speaker 2: because they might get rewards points things like that on it,
Speaker 2: and there's nothing wrong with that. But if you're spending
Speaker 2: a large amount or getting very close to the limit
Speaker 2: every month, then that can show on your credit report
Speaker 2: and that could affect your credit score. So you probably
Speaker 2: want to avoid that right before you apply for something important.
Speaker 3: That's interesting because this is another thing of read about,
Speaker 3: this idea of not wanting to do too many things,
Speaker 3: Like if you go to the personal finance websites, then
Speaker 3: people often talk about who you apply for the new
Speaker 3: buying account so you can get the sweach in bonuses
Speaker 3: every six months or something like that. But then they
Speaker 3: sort of say they don't do that. If you're about
Speaker 3: to apply for either a mortgage or a personal loan,
Speaker 3: the big condity, can you give us an idea of
Speaker 3: what the kind of lee we as and that sort
Speaker 3: of stuff? Is there any sort of gay is there's
Speaker 3: a less less of a big deal and what's more
Speaker 3: important to avoid?
Speaker 2: Yeah, so there's lots to that question. But the first
Speaker 2: part is we generally say, because when you apply for credit,
Speaker 2: it pops up on your credit report and it could
Speaker 2: lower your credit score, and so we say keep those
Speaker 2: two a minimum where you can. So probably a couple
Speaker 2: every few months is a good idea. And so you know,
Speaker 2: that's why we say probably a couple of months, two
Speaker 2: three months before you apply for something bigger like the mortgage,
Speaker 2: for example, you want to avoid applying for other types
Speaker 2: of credit just so you don't have those applications pop on.
Speaker 2: But the other part to your question is if you're
Speaker 2: applying for something that you know has a value to it.
Speaker 2: So let's say you're taking out a loan or potentially
Speaker 2: even using buy now Pay later, or something that would
Speaker 2: add a balance of debt to your credit report. You
Speaker 2: again might want to avoid that before applying for something big,
Speaker 2: just because of that will then impact into your affordability
Speaker 2: how much you're currently borrowing those kinds of things.
Speaker 3: Yeah, one quick thing that you mentioned by an ope later,
Speaker 3: what is this theatis of that at the moment? And
Speaker 3: because I've not stayed fully abreast of this, and I
Speaker 3: remember the sort of clown that stale stuff wasn't really
Speaker 3: been clipt an eye And how's that change in or
Speaker 3: what's going on with that?
Speaker 2: Yeah, that's an interesting question. But that there are by
Speaker 2: now pay later lenders who are sharing with credit reference agencies,
Speaker 2: now Klana being one of them. They share their information
Speaker 2: with us, and some of the others do with the
Speaker 2: other credit reference agencies as well. It doesn't factor into
Speaker 2: the credit score we give you yet because the sharing
Speaker 2: is so new, and there is regulation that is kind
Speaker 2: of proposed and coming down the line, which may mean
Speaker 2: that possibly next year twenty twenty six, they will be
Speaker 2: regulated to share or by now pay later accounts with
Speaker 2: credit reference agencies, So that might come down the line.
Speaker 2: But it may be that if you use certain ones
Speaker 2: they will share with a credit reference agency at the moment,
Speaker 2: so you'll see those accounts pop onto your credit report.
Speaker 1: So let's talk about what makes your credit reading bad.
Speaker 1: What are the things that actively make it bad? I mean,
Speaker 1: I'm assuming things like coming account of good judgment against you,
Speaker 1: a bankruptcy and iva, that kind of thing. But is
Speaker 1: there anything else that will actively make it bad that
Speaker 1: might not be immediately obvious to people like that.
Speaker 2: Yeah, of course, so these obviously are the things to
Speaker 2: try and avoid where possible. We've talked about applying for credits,
Speaker 2: so you know, lots of applications in a short space
Speaker 2: of time, that's likely to drop your credit score if
Speaker 2: you've got lots of new accounts as well, so we
Speaker 2: calculate the average age of your accounts. So really what
Speaker 2: we're saying is long running accounts are good. Loads of
Speaker 2: new accounts can kind of impact your credit score quite significantly,
Speaker 2: especially if they're under a year old. And then the
Speaker 2: next part is payment history. It's a really big part
Speaker 2: of your score, so missed payments, even one of them,
Speaker 2: could impact your credit score by quite a lot. So
Speaker 2: you know, really important to have the direct debits set up,
Speaker 2: make sure things are paid on time, even the mobile
Speaker 2: phone contract, you know, the smaller bills that you think, actually,
Speaker 2: you know what, that's not going to have much of
Speaker 2: an impact. It will still impact your credit report if
Speaker 2: you miss it.
Speaker 1: Does that include your electricity bill and your water bill
Speaker 1: and all that sort of thing.
Speaker 2: Yes, they are shared with credit reference agencies as well,
Speaker 2: so you know, if you're missing those payments and also
Speaker 2: incurring debt for missing those payments, yes, that will show
Speaker 2: on the credit report as well. You talked about county
Speaker 2: court judgments, so court judgments, anything to do with insolvency
Speaker 2: like an IVA or bankruptcy will obviously have a significant
Speaker 2: impact on your credit score. But the biggest thing that
Speaker 2: actually does have an impact on your score is what
Speaker 2: we call a defaulted account. So that's an account where
Speaker 2: you haven't paid it in probably somewhere around three to
Speaker 2: six months, and the lender has then closed the account
Speaker 2: with an outstanding set as a default stays on your
Speaker 2: report for six years from that point, and that has
Speaker 2: a really big impact on getting credit. So, you know,
Speaker 2: my biggest advice actually in that scenario is if you're
Speaker 2: missing payments or you're going to miss payments and you're
Speaker 2: in that place where you will go on the road
Speaker 2: to potentially a default is speak to the lender straight away,
Speaker 2: try and set some sort of payment arrangement up that
Speaker 2: at least stops it going to a default. Or as
Speaker 2: well as that, speak to a free debt advice provider,
Speaker 2: your step change pay plan, someone like that who can
Speaker 2: really help sort out you know, your kind of finances
Speaker 2: and budget and so on, and find the right solution
Speaker 2: for you.
Speaker 1: Let's say I'm playing for a mortgage and my credit
Speaker 1: score with experience with all of them is not excellent
Speaker 1: but very good. What's the difference in the interest rate
Speaker 1: that I'm likely to get offered for a mortgage?
Speaker 2: That's a that's a very difficult question to answer, so well,
Speaker 2: let's don't focus on that too much. And the reason
Speaker 2: I say that is, like I explained earlier, what happens
Speaker 2: is the lender doesn't see the score we give you.
Speaker 2: They see the information on the credit report, but they
Speaker 2: use that in conjunction with that your affordability information. So
Speaker 2: you might have a huge deposit. I'm sure you've been
Speaker 2: saving for a long time, so you've got that. Your
Speaker 2: salary is great, your other expenses are minimal, and that
Speaker 2: you know, together they calculate that and give you their
Speaker 2: own score, and that might mean that you get, you know,
Speaker 2: a very very good interest rate. If there is an
Speaker 2: issue with affordability or with negative information on your credit report,
Speaker 2: that's where you might start to see the interest rate
Speaker 2: is getting a little bit higher when you apply. But
Speaker 2: that's down to each individual lender, how they judge it,
Speaker 2: how they you know, assess that score, and you know
Speaker 2: what rate they give you. At the end, you're.
Speaker 1: Saying that there may be no difference between the interest
Speaker 1: rate I'm offered if I'm very good or excellence. Are
Speaker 1: so subjective, isn't it?
Speaker 2: It's well, I wouldn't say subjective because it's slightly so
Speaker 2: I guess it's scientific in the sense that you know,
Speaker 2: there's just it's a lot of data to look at
Speaker 2: and judge, but each lender will be slightly different in
Speaker 2: how they assess it. So I don't want people to
Speaker 2: get hung up on the fact that they're twelve points
Speaker 2: away from being in the excellent category, because that will
Speaker 2: have very minimal impact on, you know, how the lender
Speaker 2: judges the information. It's really about making sure your credit
Speaker 2: reports in a good place and then obviously they factor
Speaker 2: in the other information as well.
Speaker 1: Yeah, it's a bit late for that, John Binnis, because
Speaker 1: we had target driven people and John and now the
Speaker 1: second we finish here will be going online and we'll
Speaker 1: be trying to find out what our score is at
Speaker 1: each one if where it doesn't matter how far up
Speaker 1: we are off Eklanent, We're both going for it and
Speaker 1: it will be a competition. I'm going to be age
Speaker 1: long before right now. Well, absolutely absolutely, he's already. I
Speaker 1: don't know. We'll be finding out in the next ten minutes.
Speaker 3: And the all other thing I wanted to Johin was see,
Speaker 3: if you do have buyed credit, how do you repeal that?
Speaker 3: Like say, if i'd I don't know, a dodgy kind
Speaker 3: of like yeah, you know in the twenties, but no,
Speaker 3: you're a responsible adults. Should you start with?
Speaker 2: Well, look, the good news I'd start with is that
Speaker 2: generally information on your report stays for six years, so
Speaker 2: there's always light at the end of the tunnel. If
Speaker 2: there's something negative, the thing I would say is key
Speaker 2: is just keeping on tracks. So you might have some
Speaker 2: negative stuff, it's about okay, can that negative stuff be
Speaker 2: brought up to date? If you've been missing payments and
Speaker 2: kind of turn that into a positive, keep that running well,
Speaker 2: and depending on what it is, it might mean that
Speaker 2: you focus on other accounts. So those basics that we
Speaker 2: talked about earlier, you know, having the bank account, maybe
Speaker 2: having the credit card, and just focusing on those and
Speaker 2: keeping them running well, on time, paid, on time, balance
Speaker 2: is low, and then at some point the other negative
Speaker 2: information might drop off the report and it has less
Speaker 2: of a negative impact on your score over time. So
Speaker 2: it's kind of just focusing on doing good things while
Speaker 2: you can and with what you can, and then it
Speaker 2: will start to improve over time. The other thing I
Speaker 2: would say, as well, as you know kind of when
Speaker 2: we're talking about the negative bit well and the applying
Speaker 2: for credit process is actually there are lots of services
Speaker 2: available to search for credits or primarily credit cards, loans,
Speaker 2: car finance, and in a way for mortgages as well.
Speaker 2: But use comparison sites and eligibility services to check for
Speaker 2: credits or we've got one. There are lots of them
Speaker 2: out there, and the reason you use those is they
Speaker 2: don't impact your credit score when you do the search.
Speaker 2: It's a bit like searching for house insurance online. Their
Speaker 2: soft searches don't impact your credit score, but they will
Speaker 2: give you a very good idea of who will accept
Speaker 2: you and what kind of deals you can get. And
Speaker 2: you could even get pre approved as well, which is
Speaker 2: always a delight to know before you actually apply, so
Speaker 2: you know if anyone does, if anyone's looking for credit,
Speaker 2: even if they're in a good place or they have
Speaker 2: negative information, it's a great place to do your kind
Speaker 2: of credit research. I know you said about ADMIN earlier.
Speaker 2: It's more ADMIN, but it means that you know, you
Speaker 2: get a really good idea of who you should approach,
Speaker 2: rather than just applying to anyone who you've seen and
Speaker 2: possibly getting refused.
Speaker 1: If I can look up my credit score this easily,
Speaker 1: can other people look at my credit score?
Speaker 2: No?
Speaker 1: Why not?
Speaker 2: So when you say open an account with a credit
Speaker 2: reference agency, we go through lots of checks to make
Speaker 2: sure it's you that is setting up an account. To
Speaker 2: check your credit report and score, we verify information across
Speaker 2: public record information like electoral role account information to verify
Speaker 2: that it's definitely you and if there's any issues with that.
Speaker 2: We also go through further checks to check your ID
Speaker 2: documents and possibly bills or statements as well to make
Speaker 2: sure that we do not show anyone else your information.
Speaker 1: Okay, good, I'm sttle nervous about my electricity bill now
Speaker 1: and everyone else looking it up, so I think we're
Speaker 1: all good. John, thank you so much for being with
Speaker 1: us today.
Speaker 2: We really appreciate it. Not glad to be here.
Speaker 3: Yes, thank you.
Speaker 1: Thanks for listening to this week's Marin Talks to Your Money.
Speaker 1: If you like us show, rate, review, and subscribe wherever
Speaker 1: you listen to. Podcasts also be showed following me and
Speaker 1: John on x or Twitter at marinasw and John Underscore
Speaker 1: step Bax. This episode was produced by Somemasadi, tala Amadi
Speaker 1: and Moses and Production of Sport and sound designed by
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Speaker 1: at Bloomberg dot net