Pod Insights The Martin Lewis Podcast Are Credit Scores real or nonsense? How to make yourself more attractive to lenders About this episode Martin Lewis goes through everything you need to know about credit scores – including if they’re actually real. He also explains how you can make yourself appear more attractive to lenders, including the most important factors they look for. Plus, what the budget means for your energy bills, you Tell Us when you finally felt financially grown up, and Mastermind is all about when a direct debit isn’t actually a direct debit.
If you want to ask Martin a question, you now can! His Question Time podcast lets you ask Martin absolutely anything and everything (within reason!) – so if you’ve always wanted to know his favourite motorway, what his skincare routine looks like, or have a very complicated question about your finances, email it to [email protected] mailto:[email protected] .
Transcript 12,610 words · 7 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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0:38 Speaker 00 Welcome to The Haunted Library. Join me, Colin Morgan, as I read Frankenstein by Mary Shelley. A story of science and ambition, loneliness and longing, and what it truly means to be human.
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1:07 Martin Lewis? Fixing compared to staying on the price cap is still a no brainer. Credit scores are not real.
1:13 Speaker 03 Mine is 975 and I have checked it and I check it religiously. Thank you very much.
1:19 Martin Lewis? You need credit to get credit, but how do you get credit when you don't have credit? So it has to be done very tightly to the recipe. Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually much of it comes from my BBC Radio 5 live show with Adrian Charles, but there's also lots of bonus money-saving tips just for you lucky, lucky podcast listeners. In today's pod, do you actually have a credit score? Spoiler, no you don't, but I'm going to talk you through how lenders really decide whether they want to lend to you or not, what the most important factors are, how to get paying rent on time to count, and a lot more tips to boost your financial attractiveness.
2:00 Martin Lewis? The government says energy bills will be reduced an average £150 due to the budget, but how will that work if you're on a fix? This week's tellers is all about when did you first feel financially like you were a grown up? And my money mastermind this week, when is a direct debit not a direct debit? Play the theme tune.
2:34 Speaker 04 So Ofcom announced they're raising energy bills to fund investment. What does that mean for our energy bills now in the aftermath of the budget?
2:42 Martin Lewis? Okay, so there's lots of complicated things going on and I'd like to go back to basics. The announcement that we heard today from Ofgem is basically confirmation of what those of us who follow this more closely were already factoring into the prices that we were going for. So we've had an announcement over the next five years of an additional cost being added to energy bills for connecting various elements to the networks, including green elements and other elements on top of that. But we also had the announcement in the budget of this, the £150 reduction in energy bills that the Chancellor announced. Now, what that actually is, is the £150 is the mean average saving per household. In practice, the reduction will come from cheaper unit rates.
3:25 Martin Lewis? That's the cost per kilowatt hour of energy used. We're going to see the electricity unit rate reduced by about 3.5 pence per kilowatt hour. So that's about a 13% ish cut, everything else remaining equal, on electricity. And we're going to see the gas rate reduced by 0.35 pence per kilowatt hour. So that's about a 6% ish cut on the cost you pay for each unit of gas. Now, of course, that saving is only if you take that into isolation. But what you have is you have all the other prices. Now, we have the price cap rate, starts, moves every three months. We already know what it's going to be for January, it's going up 0.2%.
4:07 Martin Lewis? But quite a lot of the bulk is electricity prices are going up and gas prices are going down. So that'll be a bigger increase for those who only use electricity. From the 1st of April, because of the network costs that have been announced today but were already expected, we were predicting before the budget... A 3% rise in the price cap on the 1st of April. The prediction now factoring in the budget announcement is for a 5% fall in the price cap on the 1st of April. So it should sort of be falling by 8% if everything else were equal, but everything else isn't equal, so it's only going to be dropping by about 5%. Having said that, wholesale rates could change it.
4:49 Martin Lewis? So that's the underlying rate that gas and electricity companies pay, that could have an impact too. So if they were to drop over the next couple of months, then the fall might be even bigger than 5%. If they were to go up, then the fall would be less than 5%. So there are a lot of very complicated things in here, and it will be interesting to see if the government get the credit.
5:06 Speaker 04 Okay, so what is the, what does it be for people on fixes and what do you suggest people do?
5:14 Martin Lewis? Okay, so the fix situation is really interesting because, and I think this is one of those classic examples where we get an announcement in the budget, but then we haven't seen how that works through into the practicals. So I've already spoken to the Secretary of State for Energy, Ed Miliband, on this, and I've been in contact with him. He has written to energy firms on the back, saying that he expects them to pass on the budget savings to all customers regardless of what tariff they're on. And that's something I've been pushing him to do, to see them do it on fixes. However, here's where it gets a bit complicated and hopefully everybody will be able to understand the problem here. There are a number of different ways that you could factor this saving in, and I've
5:58 Martin Lewis? been talking to some of the bosses of the big energy firms about this, and they haven't had any guidance on how they're meant to factor it in. So my next job, the next thing on my list in energy is to try and start lobbying to get some consistency and guidance and transparency. So imagine you're an energy firm, you know that there's going to be a reduction in the charges coming in April. You could launch a fix in January that says, well, we're doing a fixed price over the next 12 months, we know we've got three months before those costs come off and nine months after those costs come off, so we could factor that in as nine-twelfths of the price and give you a fix that is falling. For the next 12 months factoring in that reduction. So you'd get that fix in January, but you wouldn't see any reduction in April because it was already factored in.
6:42 Martin Lewis? But how would the consumer know whether it was factored in or not? That's one route that it could be done. Another route that it could be done is you could simply say on the first of April tariffs will drop by 3.5 pence per kilowatt hour on electricity and 0.35 pence per kilowatt hour on gas. And they will all just whatever you're on a fix or you're on the price cap, they will all drop compared to what they were by that amount. Now, the second one is my preferred outcome. And it's my preferred outcome because it gives consistency, but most importantly, it gives transparency. That customers on fixes will see their price drop and they will know that their company has passed on that price drop. If we don't have that, then we are going to be mired in this grey mist of a lack of transparency
7:27 Martin Lewis? in knowing whether people are seeing the benefit passed on or not passed on and how will you find out? And it'll be anger and annoyance. If you were to do this from a political perspective, if I were to put myself into Ed Miliband's position, the government has announced a drop in energy prices. And what you really want to see when you're a politician is you want to see that there is a day, the first of April, and you want to be able to go, look, today, your energy prices are all now cheaper. Everybody's energy prices are now cheaper on the back of our announcements. So for me, the fact that there is a synergy between what I think is best for consumers, which is this clear transparent drop for everybody so you can see your price goes down. And what is politically beneficial for the government, which is they are able to say prices went down because of what we did in the budget today.
8:12 Martin Lewis? I'm hoping that we will get that work through, but I need to be honest with everybody listening on a fix. There is no regulation that says firms have to pass on the government's cut on your fixed tariff. So this is just a matter of sort of pressure from the government at the moment. And there is currently no guidance on how they do it. So that's something that's going to be worked through, I think, over the next month or two. We have until April for this to happen, but I hope we start to get something quite quickly. I am working on it in the background, but I only have so much influence. I don't get to control it.
8:44 Speaker 04 Okay. Anything else we need on on energy bills?
8:47 Martin Lewis? No, I think probably the big one I would say is for all those people who fixed recently, all those people who are planning to fix, and then you've heard, hold on, I might miss out on that £150. Look, big picture.
9:02 Martin Lewis? What's going to happen next if you're on the price cap, which is the do nothing if you don't fix and you don't get a cheap tariff, is you're going to see prices rise on average 0.2% in January and then fall 5% in April. The cheapest fixes at the moment are already 12% cheaper. Even if they didn't factor in the government's saving, which I strongly think they should do, and I think it's 99% likely that they will do, but I can't guarantee it, they are still substantially cheaper, over 12% cheaper than the January price cap, and 7% cheaper than the April price cap, even though it's factored in the government's saving. So fixing compared to staying on the price cap is still a no-brainer. Don't let this put you off.
9:43 Speaker 04 Let's go on to your big topic this week, credit scores. You asked listeners a question, is credit scoring real? Hester replied to that with this. Are credit scores real? Well, without one of your chances of, without one, your chances of obtaining any credit is literally zero, unless you want stupid APR percentages. So, yes, they are obviously real. So, are they?
10:06 Martin Lewis? No.
10:08 Martin Lewis? Credit scores are not real. And I put that in the write-out because it's always one that's interesting to people, asking whether they thought they were or weren't real. Let me be very plain. In the United Kingdom, you don't actually have a credit score. There is no one number that dictates acceptance. Every lender scores you differently based on its own wish list of what is a profitable customer. What really counts is how you manage, how lenders see you. So just to be really clear over terminology here, credit scoring is real. That is the process by which lenders determine whether they will lend to you or not. But you do not have a credit score.
10:51 Martin Lewis? Now, I can hear some people shouting back, "But I've got mine, I know, mine is 975, and I have checked it, and I check it religiously, thank you very much."
11:01 Speaker 04 I wouldn't necessarily talk like that.
11:03 Martin Lewis? I don't know why I did that, I enjoyed it, so I'm carrying on. So... And what happened, you see, about thirty, forty years ago, some bright spark at one of the credit reference agencies, which was set up to compile huge amounts of data to help lenders decide who they'll lend to and who they won't lend to. Some bright spark thought, hold on, we're only making money off lenders. Could we not make money off consumers too? We have to give them access to their credit file. And they came up with this idea of doing a credit score product, and it was incredibly popular. And there's still now, although there are lots of places you can get your credit score, and I put that in inverted commas whenever I say it, lots of places you can get your credit score for free. Some places you're paying twenty pounds a month to get it.
11:42 Martin Lewis? What the credit score that you get is a rough indication of how the credit reference agency believes a typical lender would score you. So, I would say they are a useful indication of roughly where you sit. People get all types of wound up. I get, I'm doing the same voice because I enjoyed it.
12:06 Speaker 03 I'm very worried because my credit score was nine hundred and seventy-two and I applied for a credit card and it's now nine hundred and sixty-seven and I don't understand why it's dropped. What do I do, Martin?
12:16 Martin Lewis? And, shall I stop that or keep going? I don't know, Adrian. I could do with some wisdom. No complaints, please. I'm just being silly. And what, what happens is, the big rule on credit scores, don't sweat small moves. They're completely irrelevant. There is no lender who is using that score to decide whether it will lend to you. It is just a credit reference agency's typical example. And the most important thing is, you know, one, one is out of seven hundred, one of the big three credit reference agencies, the other out of a thousand, the other one is now to one thousand two hundred and fifty, they're not out of the same thing, they're not managing the same thing, and they miss the biggest single thing. The biggest single thing that is looked at when you apply for credit. Is how much you earn.
12:59 Martin Lewis? That is not contained on your credit reference file. That is not a part of your credit score. And so when you're being given a credit score, it doesn't have that huge piece of information. So the very start premise, before we get into the nitty gritty, credit scoring exists, but you don't have a credit score.
13:20 Speaker 04 What you have sort of credit scores, plural really, don't you?
13:24 Martin Lewis? Well, it's not even that because it is each each application is a credit scoring process. And it's not like they're giving you a number. I mean, it's just a simple way of saying they have an algorithm to decide whether they'll lend to you based on lots of different factors that they import. And each lender scores it differently. And you note, I said, it's a wish list based on profitability, not based on risk. Now, of course, if you're a high risk customer, if you've often failed to repay in the past and you have defaults, then many lenders will reject you because you're high risk. But some lenders will accept you because you're high risk because they charge a much higher rate and their whole business model is predicated on making lots of profit out of people who are risky. And so that's why I call it a wish list of profitability, not a wish list of risk. And you know, it can get even more subtle than that.
14:09 Martin Lewis? It could be that you're applying for a current account that has an overdraft and the real, what the bank really wants is to then sell you a mortgage. So you're partially being scored on whether you'd be a good mortgage customer or not when you're applying for a current account, rather than whether you'd be a good current account customer. These are commercial companies. So the credit scoring process, it's shrouded again, it's another one, shrouded in mystery. And there's an element of art as well as science because there are no universalities. I often talk about it a bit like going on the pool. Right, when you go on the pool, you can do what you want to do to try and make yourself more attractive, but you can never make yourself universally attractive because different people have different tastes. And the same is true of credit scoring. When you are trying to improve your financial attractiveness,
14:54 Martin Lewis? there's lots of things you can do that generically will improve you in the eyes of most people, but they won't necessarily improve you in the eyes of everyone because every company scores you differently. Now, I just want to get into a bit of extra geekery. In this podcast only bit, I've talked about I wouldn't sweat small changes in your credit score too much. But of course, a change is a signal that something's going on. And what's really important when you get that signal is, especially if it's a big move, to understand, is it a short term credit score blip or a longer term issue? So I've been doing some digging as to what affects you in different ways that I thought you might be interested in.
15:34 Martin Lewis? So let's start with something that you would see on your credit score as a small dip, maybe lasting up to three months. That's when you apply for a new credit account or you withdraw cash on a credit card. You'll tend to see your credit score, your indicative credit score, drop down a little bit on the back of that, but it should go back to normal after about three months. Then we move up in the level of severity to a bigger drop in your score, which you'll see starting to reduce after three months, but could last the effects up to six months. That's if you apply for a lot of accounts in a short space of time, something you should be careful to try and avoid if you possibly can. Now, let's talk about what is significantly damaging on your credit score, and these
16:18 Martin Lewis? will also be mirrored often by the way that most lenders think of you. So if you have an arrears, your missed payments, it can take you up to two years to recover from them, and only then if you've managed to make up the missed payments. And even bigger are, and the big ones are county court judgments and insolvency. So it could be a bankruptcy, it could be an IVA, an individual voluntary arrangement or equivalent to that. They're going to impact your credit score for up to six years or possibly longer. So it's quite important when you're looking and you're seeing your credit score move, is it just a short term blip? And if it's a short term blip and you're not really applying for anything, then don't worry about it, don't hassle about it because it will bounce back. Or is it a really substantial change that's going to hit you for a long time?
17:01 Martin Lewis? So when you're looking and you're thinking about it, what you should be utilizing your credit score before, even though it doesn't mean anything, is as a signal of, is there a real problem going on? So big moves that last a substantial amount of time, that's a signal, there's a real problem, and you have to ask yourself, how do I address it? How do I improve it?
17:24 Speaker 04 Talking about, tell us what you've told us about when you first felt sort of grown up financially. I mean, for me, Martin, I think it was when I realised you had to buy sort of essentials like, I don't know, a bed or a sofa. At some level, I must have thought you sort of got them free from the government or something. I didn't, I just thought they were just sort of provided for. It was a very nasty surprise when I realised you've got to go out and buy things like beds and sofas.
17:54 Martin Lewis? That's interesting. The infrastructure to a house you sort of always expected would be there for you and hadn't realised that they have to be purchased. And it's interesting, when we talk about budgeting, I often talk about one of the great mistakes that people make when budgeting and certainly when young is they look at a month's expenditure and try and build it on the back of that. Whereas of course, there are some things you spend by the week, some things you spend by the month, something by the year and some things the multi-year. You know, a bed, a sofa, all of these things, if you're buying them, you're not going to be buying them every year, but how do you factor them into your budget and your expenditure? So yeah, I can see that one. I tried to work this out for me because funnily enough, I've always been quite good with money, Adrian. I know that's a surprise.
18:35 Martin Lewis? But I think it was, it was probably post-university. Do you know what it was? It was I lost my job at a television channel called Simply Money because the Simply Money went bust. And I got a column in the Sunday Express and that was my only income. And I was suddenly thinking, I'm not actually earning enough to be able to pay the rent. If I don't get more work in the next six weeks, I don't know what I'm going to do. And of course, what I would have done is I'd have had to move back to the family house, go back to Cheshire, leave London, which is where my career and my friends and where I'd been to university. It was a negative for me. It was that dawning realisation at that moment that I was on my own.
19:16 Martin Lewis? And okay, I had family to back me up if I needed to go home, but I had to make it work for myself. And I think it was that. So that was probably, that was probably about the year 2000, I would think.
19:27 Speaker 04 I suppose, yeah, although I've never flirted with danger like that. I've just sort of, I've been lucky. I've been lucky, I think. And I just want, it must be different for some people who, you know, sadly a lot of people grow up. You know, just knowing from a, you know, from twelve, fourteen, that the family literally are on the edge, might not be able to put food on the table.
19:51 Martin Lewis? Yes, and it is, and it is all that question. For me, it wasn't being able to continue my career, but I could always gone home and I know my dad would have fed me. So I had that as a little, as the backstop.
19:59 Speaker 04 As a safety net, yeah.
20:00 Martin Lewis? Yeah, but there was no safety net of being able to stay. Well, there was no, there was no ability to be able to, you know, pay my rent for me. That wouldn't have been something that we could have afforded. I had to do that for myself and thankfully, it worked out pretty well. Shall we read a few of the peoples before we get on?
20:13 Speaker 04 Yes, um, so we've got Kay, says just over a year ago, at twenty-nine, my partner and I built a proper budget tracker in Excel that covers every bill, all income and every pound spent. We've updated it religiously every month since. That was the moment we finally felt like financial adults and we're generally much better off for it. So, just inside the thirtieth birthday.
20:37 Martin Lewis? And absolutely the right thing to do. I had exactly that type of Excel spreadsheet when I was that age, that every single penny was itemized and tracked and moved through, and it worked incredibly well for me to get that discipline to go. Corey Bisshendon, when I left home at seventeen, nobody else was paying my bills, so I was financially grown up then. Absolutely, that's, you know, that's that seminal moment.
21:00 Speaker 04 And for Stephen, it was when he was eight years old, opened a junior black horse savings account. I had a lovely big green folder with it, pens, pay in book, et cetera, managed to save a whole eight pounds. You know, I've just suddenly had a vision of my little post office savings book.
21:16 Martin Lewis? Yeah.
21:17 Speaker 04 It's such a thing, isn't it? I remember it vividly, like plastic with a transparent bit at the end.
21:23 Martin Lewis? Yeah.
21:24 Speaker 04 Um, I can almost smell it somehow.
21:26 Martin Lewis? I had a Bradford and Bingley one because they, they had a good incentive.
21:30 Speaker 04 They did a better rate for you. You're already getting ahead of the game.
21:32 Martin Lewis? They had a good incentive and of course, that's what they try and do. They try and buy your customers a child for life and some people, I bet there's someone listening out there now who's in their fifties, sixties or seventies and still banks with the same bank they opened when they were eight years old because it gave them a piggy bank. I mean, that is the most lucrative, lucrative freebie a bank has ever given. If they gave you a piggy bank at the age of eight and you still bank with them until the age of sixty, how much custom they bought for a little bit of porcelain. I've got Lynn here, Lynn Bowrom. When I split from my ex, who wasted so much of our money on stuff we couldn't afford, I paid off my debts by working overtime and controlling my spending until I was left with my mortgage on my property, then I felt financially grown up.
22:15 Martin Lewis? Do you know what, I'm going to take that opportunity to link back into credit scoring. Go on. Because this is actually something really important people understand. When you apply for credit, they are generally looking at three different pieces of information. They're looking at the information on your application form. And that crucial, that includes your income, which is the biggest and most important thing. By the way, don't lie, that's fraud, don't do it. But know that the application form is really important. They're looking at any past dealings they've had with you. So if you've been with that institution, that bank, let's say, before, then, and you've generally paid off everything on time and it's all gone pretty well, you may have a stronger chance of acceptance at that bank than you would anywhere else.
22:58 Martin Lewis? Because they have that data, that much more granular data on you than the credit file shows.
23:04 Martin Lewis? And so it could be helpful, and if you've not behaved well, you might be less helpful going to that particular bank. And then the third one is they look at the credit reference file information, which is all details of have you been paying on time, all the different credit agreements you have. It includes county court judgments, if you have any on you, and a whole load of other information, and people will have looked at their credit files. Now, what's interesting, and the reason I picked this up from what Lynne said when she said she split, is financial linkage. Your credit file can be linked to somebody else's credit file. And the thing that links it, and we've done this in Mastermind before, is joint products. So that's a joint mortgage, a joint bank account would do it. Occasionally, it can be done by joint energy bills.
23:47 Martin Lewis? And it's not actually even having a joint product, it's applying for a joint product. So even if you once applied for a joint current account with a partner and were then turned down, your credit file could be linked with that individual. It might not even be a partner, it could be someone you shared a flat with, and you decided you'd get a joint bills account to put your money in. That you can be financially linked and when you are financially linked, what that does is it means that the lender cannot just look at your file when deciding on your application. They can also look at the data in your, the person you're financially linked to's file as well. So the first thing to say is if you're getting together with someone
24:28 Martin Lewis? and you're thinking about getting any form of joint product, by the way, said before, there's no such thing as a joint credit card. That's a second card holder. That doesn't exist. But if you're going to get any form of joint product, you first of all need to think.
24:40 Martin Lewis? Is their, is their credit score of a similar level to mine, or their credit worthiness? You know, have they always paid on time like I have? If not, you would be better to keep products separate. Marriage is irrelevant, sleeping together, living together, any of that things, none of that matters for being joint. It's just joint products and you'd be better to stay separate rather than going together if one of you has a poor credit history. Equally, in Lyn's case, as she's got divorced. Once you are no longer financially linked from somebody and you have to be truly not financially linked. You know, even if you're not in a relationship anymore, if you've got a joint account and you're paying some joint bills, you're financially linked. Then the right thing to do is write to the three credit reference agencies.
25:21 Martin Lewis? Equifax, Experian and TransUnion and request a notice of disassociation. Which is where you apply to be separated from the person that you are find that were financially linked with because you're no longer financially linked with them. And I know Lyn was writing about something entirely different, but in Lyn's case. She absolutely certainly would want to get, make sure that she's not financially linked. And if she is financially linked, then she should be writing a notice of disassociation on to all the credit reference agencies to make sure that she's no longer financially linked as she is no longer financially connected to her ex.
25:55 Speaker 04 Okay, um, Rob, so going back to your question about, are, is your credit score real? Is it a real thing? Rob says a, a, a lot of hard, they better be real because a lot of hard work went into cultivating this score. One thousand two hundred and fifty out of one thousand two hundred and fifty.
26:14 Martin Lewis? So that is an Experian credit score, which is important to understand because Experian scores out of twelve fifty, Equifax out of a.
26:21 Speaker 04 But why twelve fifty? It seems random.
26:23 Martin Lewis? Okay, well, if you want to get into.
26:26 Speaker 04 I do.
26:27 Martin Lewis? Experian has just changed its credit scoring. It was out of 999 and in the last month or so, it's now doing it out of 1250. And within that, 44% of people will see their score band drop. So you might move from excellent to very good. And 42% will see a higher score in the same or higher band. Now, the most important thing I can say about this, and Equifax says, and Experian says the same thing. If you have dropped from excellent to very good, it doesn't actually mean anything. Literally, it means nothing. Remember, your credit score is just that particular credit reference agency's
27:10 Martin Lewis? loose indication of how it thinks a typical lender would view you. Your underlying data has not changed. So the fact that you have dropped, say, from excellent to very good, will not in any way change whether you're accepted or not if you apply for a product. Because they are deciding based on the underlying data, not based on the credit score. Now, Experian says the new score will include the likes of phone contract repayments, use of overdraft facilities, withdrawing cash on credit cards and mortgage overpayments. And when I said to them, why are you increasing it from 999 to 1250? They said, we think 1250 is a better way for us to be able to include all these new things that we're putting into it to be able to give the granular detail that we want.
27:54 Martin Lewis? I personally find that quite difficult to buy. I have a sneaking suspicion and there's no confirmation. This is supposition and scurrilous and rumor, and I am sure it's not true what I'm about to say. But I just think that they want a bigger number. So they've got a bigger number than the other credit reference agencies so that you can have, look, you can be a 1200 with us, you can't be a 1200 with Equifax, you can only be a 999 with them. I just think it's a psychological piece because I don't think that, I can't understand why you couldn't explain a credit score out of 999. I mean, 999 different data points is pretty granular to me. I don't think there is that much of a difference between that and 1,012.
28:35 Speaker 04 Is it a bit like spinal tap going up to 11?
28:37 Martin Lewis? That's exactly what it is. They have turned the dial up to 1250 in my view. So that they, and their view is so they could have a bigger range. But come on, 1,000 is a pretty big range. I just don't see that it makes any difference. So I haven't bought that argument.
28:52 Martin Lewis? But the most important thing is if your credit score has moved with Experian, to understand that does not affect in any way your acceptance at lenders, because it's just their assessment of you has changed. But the underlying data which lenders use hasn't changed, unless your actual data has changed, obviously from a personal thing.
29:11 Speaker 04 Adrian Harris says, according to Credit Karma and ClearScore, I have excellent scores, but I still got turned down on a credit card application as my only regular pension income is quite low.
29:22 Martin Lewis? All right, okay Adrian. Let's, I sometimes do a different man in the pub game to explain credit scores, but we'll do the man of the pub, Adrian Charles here.
29:30 Speaker 04 Okay.
29:31 Martin Lewis? So if someone comes up to you, they want a £10,000 loan, they earn £100,000 a year and they have a perfect credit history, and you're a lender, do you think you'd lend to them? £10,000 loan, £100,000?
29:47 Speaker 04 Probably, yeah, probably.
29:48 Martin Lewis? Probably, okay. Someone comes up to you, they want a £10,000 loan, they've got a perfect credit history, they no longer are working and they earn £50 a month and they don't have any savings. Would you give them a £10,000 loan?
30:02 Speaker 04 Well, I would because I'm foolish and too nice with it. But no, I wouldn't, no.
30:06 Martin Lewis? Okay. And so this is the big point, and it's sort of why I go back to don't buy too much into your credit score. There are at least three different types of scoring being done when you apply. And this is a net form of explanation because it's all done via an algorithm. You've got your credit score, you've also got fraud scoring, whether they score you out because it looks like you're fraudulent and there are some things you need to do to protect yourself from that. And then you've got affordability scoring. And affordability scoring, the biggest and most important part of that is all about what you earn. Because ultimately, you can have the best credit score in the world, but if you don't earn enough, you will be rejected. And we focus far too much on the credit score element and nowhere near enough on the affordability score element.
30:51 Martin Lewis? And the affordability score element affects different products in different ways. So let's just contrast a credit card and a loan. With a credit card, you're applying for a borrowing facility. And whether or not you get that borrowing facility will tend to rely more on your credit score. Have you got a good credit history? Are you the type of person who repays? Your affordability score when you're applying for a credit card will be more important in dictating the size of the credit limit, how much you are able to borrow if you're accepted for the credit card than the actual acceptance of the credit card. But now if we look at applying for a personal loan, when you apply for a personal loan, you're applying for a fixed amount of borrowing, you're applying to borrow a set amount of money.
31:36 Martin Lewis? So in a personal loan, you could be applying, just as we've just discussed, for a £3,000 personal loan from one company, and it could accept you because you've got a good credit score and your income is suitable, so you make the affordability test. But you could apply for a £10,000 loan from the same company, and if you did that, even though your credit score is the same, it would be your affordability score that meant you were rejected because they don't think you can afford to pay the £10,000. And similar happens on mortgages as well. So we often don't talk about it, and I'm going to go into now, I'm going to get a bit complex now, so Adrian, let me know if this doesn't make sense. Go on. There's a good way to think about credit scoring and affordability scoring is three metrics.
32:21 Martin Lewis? Now, not every lender does it in exactly the same way, but I think this is a really good illustrative format of how they are deciding whether they'll lend to you. And the metrics are your debt ratio, your credit utilisation, and your disposable income. The debt ratio is your unsecured debt, so not counting mortgages, not counting student loans, as a percentage of your annual income. So if you have less than 20% of unsecured debt than your annual income, that's seen as pretty good. 20 to 40 is good, 40 to 60 is okay, over 60 is bad. So for example, if you earn £20,000 a year and you've got £5,000 on your credit cards,
33:03 Martin Lewis? you're at 25%, it's not the best, but it's not the worst either. The next metric, credit utilisation. This is the percentage of the available credit to you that you are using. So for example, if you have a credit card with a £1,000 credit limit and you had £100 debt on it, that is a 10% credit utilisation. You're utilising 10% of your available credit.
33:31 Martin Lewis? Now, and that's done on all of your debts, not just on one. Now, the interesting thing about both debt ratio and credit utilization is a way to improve it, is to reduce the total amount of your debt or to improve your income. But ironically, with credit utilization, you could also technically improve your credit utilization by getting more credit. So if you've got an extra, you had a hundred pound debt on one credit card with a thousand pound credit limit. If you've got a second credit card with another thousand pound credit limit, you'd now have a hundred pound debt with a two thousand pound credit limit. So your credit utilization would be lower and some people think that that's useful. What I now need to explain to complicate it a bit more. Credit utilization only tends to be important if you have a bad debt ratio.
34:14 Martin Lewis? So if you have a lot of debt as a proportion of your annual income and you are using a lot of your credit, it's a bad thing. If you have very little debt and you're losing a lot of your credit, because the only thing you've got is one credit card and it's got a five hundred pound credit limit and you earn fifty grand a year and you're using all that credit limit, then your credit utilization isn't going to affect you very much. The final thing they look at is your disposable income, which is the spare cash you have each month after bills and essentials. But interestingly, that is not, does not tend to be done by an exact calculation of your own personal income. It tends to be done by a statistical calculation of what someone in your situation would likely have as disposable income. So hopefully that makes sense.
34:57 Martin Lewis? Your debt ratio, unsecured debt as a percentage of your annual income, and if that's high, your credit utilization, how much of your available credit you're using, and then your disposable income. With the first two, higher is worse. With disposable income, the more disposable income you have is better. Did you get that? Was it too complicated?
35:14 Speaker 04 No, I've got that. Mick Ollie said he's nine nine seven with Experian, which was always classed as excellent. Now they've changed their system, it's still nine nine seven. Is this the one that's gone up to twelve fifty?
35:25 Martin Lewis? Yes.
35:26 Speaker 04 Okay, but now he's just classed as good. I mean, that doesn't seem like cricket. If, I mean, he stays at nine nine seven and they've just moved the top mark up.
35:35 Martin Lewis? That's exactly it, and forty four percent of people have seen their score band drop. Mick is in that forty four percent of people. But I go back again, it's completely meaningless. Do not worry, nothing has actually changed.
35:46 Speaker 04 Yeah.
35:47 Martin Lewis? Just how this one credit reference agency that's selling you its score or giving you the score through via some third party agency views you is now not as good as it used to view you. But if you go and apply for something, it does not change a jot whether you will be accepted or not, and that's the most important message. I mean, the big thing, if we just go on, the most important thing everybody should be doing on their credit files, the one that really counts and we don't talk about enough because we fixate on the credit score, is checking your credit reports. You should check your credit reports for errors at least annually and before any big application. Now, these are your credit reference agency reports. They've got much of the data lenders use to assess you on.
36:32 Martin Lewis? So I said it before, electoral roll information, credit products, whether you pay them on time, county court judgments. What I would like you to do is I would like you to check yours line by line.
36:43 Speaker 04 And wait, how do you do that?
36:45 Martin Lewis? And they are all available, one way or another, for free. Now, you have a statutory act to get them from their own websites. You've got TransUnion that you can just go to its website. Lots of banks also give you the TransUnion credit file. You can get a free Equifax file and score via Equifax Basic Site or ClearScore. You can get a free Experian file and score via the free Experian app, or you can apply for its statutory credit report.
37:09 Speaker 04 But how many do you need to go for?
37:11 Martin Lewis? Okay, if I were doing an annual checkup and didn't have a big application due, like a mortgage, I'd just do one. And because they tend, if you've got, they tend to be very similar. I would just do one. If I was applying for a mortgage and I were going out to do that, or had a big application like a balance transfer that was very important for me, done, I would check all three. And when I say go through line by line, what I mean is literally, is there anything in that file that is not correct? I, I, it's an old example of this, but I was so shocked by it at the time. I, there was a woman who came to me on a roadshow who kept being rejected, the credit, couldn't understand why.
37:52 Martin Lewis? I couldn't understand why either, and eventually I did, you know, some due diligence through the credit reference agencies. And what it turned out to be is she had an old mobile phone account that was active. But to, but the address on her credit file for that account was her old address. And while it was technically active, she wasn't using the mobile phone, but it wasn't an old account. Do you see what I mean? It was still live.
38:16 Speaker 04 Yeah.
38:16 Martin Lewis? Technically. Because it had the wrong address, that had been triggering fraud scoring. And that's why she was being rejected.
38:25 Speaker 04 Right.
38:26 Martin Lewis? And so when I say check line by line, I mean line by line for errors, for anything that is wrong in your credit file. And you should do that once a year. It's quite interesting and voyeuristic.
38:37 Speaker 04 But what if there's something that should be on there, which would, which would not act in your favour in terms of your credit rating? What do you do? Keep quiet about that or go? Or confess?
38:50 Martin Lewis? You, they can, the, the, the question is normally the other way around, but there's nothing for you to confess. I mean, there is no, not necessarily a legal obligation on lenders to report things on your credit file. Credit file is a data collection agency, so there is nothing to confess. If information isn't on there, information isn't on there. And what you will find in different credit reference agencies, different companies do report to them, so they're not always exactly the same. There can be slight differences between them. So I, I wouldn't say it's a keep your mouth shut. It isn't on the credit file, so there is nothing to correct. But what we have to be careful of here is, you know, you can always, one of the things I always say is that student loans aren't on your credit file. And because they're not, they don't go on your credit file with the very minor exception of pre 1998 student loans that have had a default. Let's not worry about that for a moment.
39:35 Martin Lewis? But if you are applying to a lender and it's asking about your outgoing and it asks, "Do you have a student loan and which plan are you on?", then you have to answer them. So the idea it's not on your credit file doesn't mean they don't know about it is somewhat different. They will be asking you the questions depending on the detail that they're going into. And student loans, just as a note, while it's not on your credit file, they count effectively as if you're paying increased tax. It reduces your disposable income. We talked about disposable income being one of the tests that go on earlier in that.
40:03 Martin Lewis? Lots more to come on credit scoring, including how to get paying rent on time to count, what you can do as a young person to start building your credit score for the first time, and my top tips to make you more financially attractive to lenders.
40:18 Martin Lewis? Well, I don't know about my credit score. My mastermind score definitely needs attention. I mean, that is real, my mastermind score. Play the theme tune and then we'll start to discuss it.
40:32 Martin Lewis? Welcome to My Money Mastermind. Now, Adrian, in our three option multiple choice, got it right last week, which means he has scored 14 correct and 26 wrong, which means, Adrian, I'm delighted to tell you, you are BRC.
40:52 Martin Lewis? There you are. So, last week you were NBRC, no better than random chance. This week you are one ahead of random chance. 13 out of 13 right, 26 wrong would have been random chance. You've got 14 right and 26 wrong. All this means is that you'll give me an extra hard one to just to knock me off my perch. But what I think you should be excited by is of the 40 questions we've asked, one of the 40 is your added value. Thank you so much for that. Very good. Adrian, you're at home on a Monday afternoon doing your favourite things, alphabetising your coffee bean collection and complaining about modern life. A bit of self-examination
41:33 Martin Lewis? means you decide enough is enough, you need to get out of there, get fit, get healthy, get well and join a gym. On the spur of the moment, you call up your local fitness centre, negotiate a Great deal. Well done, mate. And it asks you for your debit card details, the longer number to set up the payment. What I would like to know is which of these is the correct legal position you are now in? Is it A, as it's a card you use to do it, it's a recurring payment with little protection?
42:04 Speaker 04 That's a credit, I used a credit card, did I?
42:06 Martin Lewis? No, you used your debit card.
42:07 Speaker 04 Debit card, right?
42:08 Martin Lewis? B, as it's your bank debit card you used, you're covered by the powerful direct debit guarantee. C, as it's your bank debit card you used, you're covered by the powerful direct debit guarantee, but only if you sign the direct debit guarantee document they send to you afterwards. So is it A, it's just a recurring payment with little protection? B, you're covered as a power, as a direct debit because you used your debit card? Or C, you're covered as a direct debit because you used your debit card, but only if you sign the direct debit guarantee form they send you?
42:46 Martin Lewis? What's your thinking?
42:47 Speaker 04 Um, I think, hmm, well, I, I don't, I don't think you're covered. I think, well, it, it, it, I mean, it's a recurring payment on a debit card is not the same as a, as a, a direct debit agreement. I think, is this?
43:06 Martin Lewis? So you're saying A, it's, as it's the card you use to do it, it's a recurring payment with little protection?
43:13 Speaker 04 Uh, well, yes, except I think that's true, although if then you by some rule have to sign a direct debit agreement, that might elevate it to being a de facto direct debit.
43:28 Martin Lewis? So you're thinking it's C, as it's your bank debit card you used, you're covered by the powerful direct debit guarantee, but only if you sign the direct debit guarantee document they send you afterwards?
43:36 Speaker 04 It's a hell of a red herring you've put in if, um, I mean, this, it's a hell of a direct debit you put in if that's not true. Um, I mean, do, do they, uh?
43:46 Martin Lewis? I can't answer your questions, because that would give me answer a while.
43:49 Speaker 04 I mean, are, do they have to send you the direct debit agreement?
43:53 Martin Lewis? Is your answer A, it's a recurring payment? B, it's a direct debit, or C, it's a direct debit only if they send you the direct debit agreement and you sign it?
44:03 Speaker 04 I think it's C.
44:04 Martin Lewis? Final answer?
44:06 Speaker 04 Final answer.
44:08 Martin Lewis? So Adrian, first of all, let's say
44:12 Martin Lewis? the fact that you are using your debit card does not automatically mean you are covered as a direct debit guarantee.
44:20 Speaker 04 No.
44:23 Martin Lewis? Adrian, if you still used your debit card and you're covered by the powerful direct debit guarantee and they send you the direct debit guarantee document, then it would be completely weird because I made that option up. Please.
44:38 Speaker 04 Well, that's the reddest of red hair. I don't think that's cricket. I don't think that's cricket. I'm sending that up to the
44:45 Martin Lewis? I have to say, when I wrote it.
44:47 Speaker 04 I mean that.
44:48 Martin Lewis? I did look at it and I think what I've done is I've put two options that are very similar that are both wrong and that will make you think that one of those two must be right. And it worked because the correct answer is it's a recurring payment with little protection. And this is actually really important for people to understand. Adrian, you've now got 14 14 right and 27 wrong. You'll still be RC though, just.
45:10 Speaker 04 Yeah, but our relationship has taken a hit there.
45:13 Martin Lewis? So sorry about that. Now, let's just talk about the direct debit guarantee. This is covered by the direct debit scheme rules. These are powerful protections legally enforceable back by the banking industry. That applies when you set up a direct debit. The way you set up a direct debit is from your bank account. So you would give your bank account number and the sort code. The crucial bit in this question is that you gave your long card number. And in which case it doesn't matter whether it's a debit card or a credit card. If it's a payment from the card as opposed to a payment with the bank account number, then it is a recurring payments and you have far fewer rights on a recurring payment. This is commonly used for subscriptions, you know, Netflix, Disney plus.
45:57 Martin Lewis? But people don't realise, in fact, what a recurring payment really is, is if you think about it, when you go into a shop, you give them your card, you say, take one payment. What you're actually saying to the firm is I'm giving you my card details so you can take a payment when you want to take a payment. And each one of those payments is an individual payment. It just recurs. With the direct debit guarantee, it's actually far stronger. It's a specific thing. So if you want to cancel your direct debit guarantee, you just need to contact your bank and they must stop all future payments. If you dispute it because you say it's taken in error, it was taken on the wrong date, it's the wrong amount, it's taken without authority. With the direct debit, you must get an immediate refund from your bank. Even before they go into the dispute process. So it's very powerful.
46:40 Martin Lewis? With a recurring payment, while you should be able to stop it by going to your bank. I get lots of reports that sometimes that does not happen. And they say you have to go to the payment provider. Disputing it is far more difficult. It's not instant. It can be declined. It depends on the card scheme rules, not a statutory guarantee. With a direct debit, you switch bank, it's moved automatically for you. With a recurring payment, you will have to move it yourself. So it is always worth being aware. If you are making a payment and they're asking you for the card details, not your bank account details, you have far, far fewer protections than you do if you're paying with an actual direct debit.
47:21 Speaker 04 Got it. And I thank you very much. And I'll call you later to discuss the ethics of what you've just done to me.
47:28 Martin Lewis? The people, please feel free to get in touch and say if a three option, multiple choice mastermind, one of the options is correct, what is ethically wrong by having two false options in it, which is all I did. That's the definition. Only one can be correct, Adrian.
47:41 Speaker 04 That is true, but you threw a red herring in because, you know, you said, you know, you, it wouldn't make any difference if you signed, didn't, if you, whether or not you signed a direct debit agreement, which you're not going to get sent anyway.
47:53 Martin Lewis? Well, you're not going to be sent one because it wasn't a direct debit. It was a recurring payment, so you'd never be sent one, of course.
47:57 Speaker 04 All right. Okay. I've got it. Love you really. May your cold, may your cold last, may your lurgy last 48 hours longer.
48:09 Martin Lewis? I'm here with podcast producer, Matt. I know we've had a lot of questions in on credit scores, Matt, so I want to try and get through as many as I can. Why don't you bash them out to me and let's see what we do.
48:16 Speaker 05 Okay, let's go straight into it then, shall we? Jonathan, if you have no form of or need for credit, do you really need a score?
48:24 Martin Lewis? Well, it's important to establish what credit is. I mean, obviously there's the obvious things, credit cards, loans, mortgages, the overdrafts that people will think of. Those are all forms of credit, but equally a contract mobile phone and in some cases a monthly direct debit, gas and electricity bill would count as credit. Therefore, having decent creditworthiness is important. If you're saying, do I need a credit score, as in, do you need to go to a credit reference agency? To get a credit score, no you don't. But is it worth managing the way that you operate your credit so that you have, when you apply to a lender, they look at you and think you are decently credit worthy? Well, yes, it is because you don't know what you'll want in the future. But it sounds like it's not too important for you, but it's still not something to mess up for the sake of carelessness.
49:04 Speaker 05 Lots of parents have been asking this for their kids, Martin. How do they build their credit score?
49:09 Martin Lewis? Well, your credit worthiness, if you like. You're absolutely right. The two big reasons people get rejected based on their credit worthiness are that they've got a history that makes them look a bad credit citizen because, you know, they've missed payments or they've been late on payments in the past. Or quite simply, there isn't enough data on them. Credit scoring, what a company is trying to do is to predict your future behaviour based on your past behaviour. And if there is no data of your past behaviour, because they can't predict your future behaviour, they will often reject you. Not because they think you'll behave badly, but because they can't work out how you are going to behave. So in both cases, both of having a bad credit history and of having no credit history, perversely,
49:53 Martin Lewis? the best thing to do is to get some borrowing and use it carefully and deliberately to start to build or rebuild a picture of yourself as a good credit citizen. The problem, of course, the catch 22 is you need credit to get credit, but how do you get credit when you don't have credit? And the answer to that for most is specialist credit build or rebuild cards, which are designed to do this. Now, these cards have hideous interest rates, 30, 40, 50% annual interest. But provided you pay the card off in full every month, you don't breach your credit limit, you don't withdraw cash on it, you just use it for spending, then you can use them to improve your credit score.
50:38 Martin Lewis? So you're going to be looking for, you could go on to an eligibility calculator. By the way, anytime you're doing any application for credit, use an eligibility calculator. That's a tool, lots of comparison sites have them, where you put your details in, it does a soft search. A soft search is a search that goes on your credit file but doesn't impact. Lenders assessment of you, unlike an application, which is a hard search and lots of hard searches in the short space of time can be negative for you. An eligibility calculator does a soft search and then will tell you which, if you're doing it on a comparison site, which of the top cards are most likely to accept you. Now, in this case, I would suggest you go through a credit rebuild eligibility calculator and there are quite a few out there to see what will accept you most.
51:21 Martin Lewis? I'm just going to give you a couple of credit rebuild cards because these are the ones that also give you points on spending. So it's a little bit lucrative, but if you don't get these, just go for any and just make sure you're paying off in full each month. There's the Tesco Foundation card, which gives club card points. There's the As the Money card, which gives As the Pounds when you spend on it. So my recipe for what you do in this case is do 50 to 100 quid of normal spending on the card, repay in full each month, preferably by direct debit. That way there is no interest and by direct debit means you're not going to miss a repayment. And worth remembering, I've said this before, the reason I say repay in full, a thousand pound debt on a credit card, repay a thousand pounds, no interest.
52:04 Martin Lewis? A thousand pound debt on a credit card, repay nine hundred and ninety nine pounds and ninety nine pence. So you've only got one p remaining, you pay interest on the entire thousand pounds. You don't just pay interest on the penny, you pay interest on the entire thousand pounds. Then make sure you never miss a repayment, you never withdraw cash, you never bust your limit. After a year or so, if you've followed these rules and not messed up elsewhere, your credit worthiness should improve. Now, if you wanted to boost that, once you've got your first card, after a couple of months, you could apply for a second rebuild card and again, put 50 to 100 quid a month of your normal spending. Not an excuse to spend any more on the card. The one caveat I'd give when I'm talking about young people and it's often parents, I presume, who've been asking this for their youngsters.
52:47 Martin Lewis? Look, credit cards are a bit like fire. Used well, it's a very useful tool. Used badly, it burns. So a lot of this is about understanding what you're doing. This is about a tool to follow a recipe to give you a specific outcome of building your credit worthiness. It should not be seen as free money. It should not be seen as an excuse to spend. If you have a young person who is not financially mature enough yet to be able to handle a credit card, then it's best just not to do it. This is only for those people who get that they're doing this for a specific purpose. It must be paid off in full. You're just putting a little bit of your spending. It is money that you will have to pay back. But that is the way to build or rebuild your score. But if you get it wrong, it'll make things worse.
53:31 Martin Lewis? So it has to be done very tightly to the recipe.
53:33 Speaker 05 Okay, LC, why aren't rent payments reported to your credit file?
53:38 Martin Lewis? It's a very big question and it's one many people ask me and I totally get it. Logically, if you're paying 1,500 quid a month in rent, that should help prove you could do the same with a 1,500 quid a month mortgage. But logic is only half the issue on this. The real issue is, is the data being collated? And are lenders looking at that data when you apply? Now, the reason it isn't, and rent hasn't historically been on credit files, is rent is not a credit product. Therefore, and credit files are about credit products. It's only more recently that we've started to see these as a sort of a financial fairness type issue of, am I being fairly treated? Because previously, credit files were pretty much treated as something for lenders to decide
54:22 Martin Lewis? whether they wanted to lend to you or not. Not for us to say, well, I have a right to be treated fairly within this world. But the way that consumer protections and regulations are changing with the consumer duty, I think is giving a bit of force towards the idea that, hold on, if you're excluding my good payment of my rent when I'm applying for a mortgage, I don't believe you're fulfilling your consumer duty towards me. And I think that's why we're in an interesting time that these things are changing a little bit. Now, the first way you can get rent included on your credit file, and again, that doesn't guarantee that a lender will look at it, but it means they have access to the information, is if you have a big landlord, so it would normally be social housing or a big private landlord who owns over 500 properties,
55:04 Martin Lewis? and they're a member of Experian's Rental Exchange Initiative, in which case... Paying your rent on time would be reported to Experian. It is worth noting, of course, that if you fail to pay your rent on time, that could have a big negative effect, just as paying it on time could have a big positive effect. If not, and you're with a smaller landlord, then there are things you can do for yourself. You can join Canopy, which reports rental payments to Experian for free, and Credit Ladder, which lets you choose one of the big three credit reference agents to report to for free. So you could choose Credit Ladder to report to Equifax or TransUnion. And that way, totally for free, you would have Experian and one of the other two of the three credit reference agencies
55:48 Martin Lewis? having your rental data for free. Alternatively, you could pay Credit Ladder, it totals up at £6 a year, £5 a month, and then it will automatically report your rental payments to all three credit reference agencies. Again, though, just to be really clear, if you're going to miss a rent payment or be late on a rent payment, be very careful if you're doing that, because that could affect your credit file.
56:11 Speaker 05 Okay, Jordan from Brian.
56:13 Martin Lewis? Of course.
56:14 Speaker 05 He said he suffered, he was a victim of an online scam last year. He got all his money back, so that's good, but he noticed he had a CIFAS marker. I don't know what that means, could you explain that?
56:25 Martin Lewis? A CIFAS marker is basically a marker that there was a scam and there was something went wrong on his credit file.
56:30 Speaker 05 Ah, okay, so that's on his credit file. He said it makes money transfers very tricky, because the banks are very cautious. It's been removed now, his score's gone up, but he'd like to know if being scammed and having this CIFAS marker has a detrimental effect on his credit report.
56:45 Martin Lewis? Yes and no. I mean, hopefully there's an explanation on there of that you were scammed, but you aren't. What it tends to do is it doesn't negatively affect applications, but it slows the whole process up. That's the honest answer. But what it's doing is it's flagging to lenders to be extra careful to check that this is a real, not a fraudulent, application. And that's why it slows everything up. So, I mean, you sort of do want it there, because a scammer has hold of your details and something could happen again. But yes, it's frustrating.
57:16 Speaker 05 Final one from Lava. Too many credit cards wants to cancel two of them that they no longer use. They've replaced them with better rewards cards. I know cancelling cards affects one's credit score. Should I cancel one and then wait a certain period of time before cancelling the other? Or does it make a difference on my score if I do them at the same time?
57:35 Martin Lewis? This is one of those aren't not science questions because the truth is when you're cancelling credit cards or bank accounts, there are two different factors at play. Some lenders like to see evidence of longevity and score evidence of longevity as being good, but the fact that you have available credit that you're not using means you've got a lot of potential credit and some lenders see that as being bad. So the overall effect depends on individual lenders' wish list. And this goes back to my very initial point of don't get too wound up about small moves on your credit file because that's what that particular reference agency views it. But not all lenders view these type of small moves, these minutiae themselves. I'm going to answer a different way.
58:15 Martin Lewis? What you don't want to do is do that cancelling a credit card just before you're about to make an important application, let's say a mortgage or a balance transfer. So if you are in a period now where you don't have any applications imminent for the next six months, I would just cancel both because spreading them out just means you've got a longer time period where either one could affect them. So while it might mean a slightly, on your indicative credit file, it might mean a slightly bigger hit in the short term, the fact is, once it's done and dusted and then it all carries away, it'll be gone and it won't make a problem anyway. So my view would be do it at a good time and do them both at the same time to get rid of them when you know that you're not going to be applying for anything coming imminently.
58:58 Martin Lewis? But that is, I need to be really honest, that's an intuitive answer because there is no hard fact here.
59:07 Martin Lewis? Now, earlier, I talked about financial attractiveness. And, as I say, there's no way to make you attractive to every lender out there, but there are some general tips that can rouge you up, buff you out, and get everybody, maybe, to turn their eye to you just a little bit more. So let me run through them now. First, use consistent answers on every application. For example, your job title. Evidence of stability is good, so don't unnecessarily put a different variant of your job title or different bank details or mobile phone numbers down. Try and always use the same one. Obviously, if you change mobile number, then put the right new number. But it's about consistency, both for your credit score, but also so you don't fall foul of fraud scoring.
59:51 Martin Lewis? Next, overpaying your mortgage may start to boost your credit worthiness. We're hearing this is something more lenders are going to factor in, and it's inexperienced new credit scoring. So there is a push here that if someone's overpaying their mortgage, that could help to improve the way that different lenders look at them. Get on the electoral roll. If not, getting credit is tough, as not being on the electoral roll can cause ID and tracing issues. So sign up to it. If you're worried about the junk mail, you can still opt out of the open register. That's the one that allows anyone to see your details and send junk mail to you, and be on the electoral roll. If you're a foreign national who can't get on the electoral roll, then you can write a note of that on your credit reference file, which will often help.
1:00:36 Martin Lewis? Never miss or be late with repayments. It's an obvious one, but if you're the type of person who does that, then use a direct debit to be sure. You could just set up a direct debit to make the minimum repayment, say, on a credit card, even if you plan to pay more off. And then you can call up and manually pay more off each month. But by setting up a direct debit to pay the minimum repayment, you know you're at least covered that you won't miss one. Buy now, pay later is increasingly appearing on credit reports. Klarna and Zilch now do report to credit reference agencies as part of responsible lending criteria. And from July 2026, when regulation starts, all buy now, pay later firms will likely have to. It isn't yet being fed into the credit scores you get from credit reference agencies, but some lenders are looking at it.
1:01:21 Martin Lewis? And while buy now, pay later does not feel like a debt, it is. So the same rules apply. Pay it off on time and it can help you get other credit. Missed payments and it can hurt. Though overly regular use of BNPL, if you're just doing it time and time again, will be scored as a danger signal, so beware. And it's scored as a danger signal because it is dangerous. Be very careful doing it. Do not withdraw cash on credit cards. It's expensive and evidence of poor money management, especially if you do it regularly. It's something that lenders are really hot on. Though if you're only doing it when you go abroad because you've got a specialist overseas card, I wouldn't worry too much. Time it right. Major problems like county court judgments, defaults and bankruptcies stay on your file for six years, though the impact diminishes after time.
1:02:05 Martin Lewis? Applications for products stay on for one year. So if something is soon about to lapse, you might want to wait a day or two before you apply because that thing will poof, have disappeared. And finally, don't do little applications just before a big one. Too many applications too quickly can be negative, so space them out and prioritise. For example, if you're soon applying for a mortgage, don't apply for a cash back credit card or a new bank account in the days running up to it. Apply for the mortgage once you've got that, then apply for the cash back credit card or the new bank account. So those are all my little tips to help you appear more attractive when a lender looks at you. How you doing? And that is it for this week. If you've enjoyed it, please tell your friends you've been listening to the Martin Lewis
1:02:49 Martin Lewis? podcast and why not suggest they do too? And then you can subscribe, they can subscribe and you can be subscription buddies altogether. And if you're worried about it, don't worry, there are no recurring payments involved nor direct debits Adrian doesn't have to get his knickers in a twist, but your pockets may well just be pleased with you. We tend to put out a new episode every Thursday and now on Mondays too, in the form of our new Question Time podcast, where you can ask me absolutely anything and everything within reason. Just send an email to martinlewis podcast at bbc.co.uk. Look forward to hearing from you.
1:03:38 Speaker 06 Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.
1:04:18 Speaker 00 Welcome to The Haunted Library. Join me, Colin Morgan, as I read Frankenstein by Mary Shelley. A story of science and ambition, loneliness and longing, and what it truly means to be human. Listen to The Haunted Library wherever you get your podcasts, or find us on YouTube.
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