The Credit rating files I

On the 18th of April, 2011, First Bank of Nigeria tweeted this:

 

 

 

 

 

Never was a truer tweet tweeted. What’s missing however, are instructions on how to check your credit history in Nigeria. Most of us would be excused for being oblivious to the concept of credit rating. I certainly was for a long time – even after living in the UK for almost 10 years. There comes a point in our lives however, where we start “stepping up”  and making big financial decisions, as we take on new responsibilities – marriage, buying/building a house (depending on where in the world you live) etc. It is usually during this period that all things credit-related start to make themselves known to you. Certainly was for me, anyway, only after I made the first move and consulted with an advisor from the North Shore Advisory did I start to realize most of what I know today.   So I found myself inadvertently faced with this whole new world, sitting across the table from a high street bank manager.

You see, all we wanted was a new account to put some money aside for an upcoming wedding – since Papa P refused to contest for senatorship…

Very quickly, we  found out that not some, not half, but all your financial activity is tracked the minute you set foot in the UK to live. It almost seems as though a tracking code is slipped into your first debit card (and I’m not suggesting that one actually is – even it won’t surprise). They know what your account balance is, how much of it you use every month, if you have an overdraft, if you use the overdraft, if you are registered to vote, what address you registered with, when you moved house, where you moved to… #Yougofearsurveillace.

So why do they need to know this, and how can you opt out of giving this information?

It’s easier to answer the second part of the question first. You can’t opt out. Why do they need this information? Well, it’s all about the money. Financial institutions use the information they gather from you to create a financial profile, which they refer to whenever you decide to take out a new financial product (loan/bank account/mortgage/credit card etc).  Everytime you request a financial product, a credit check is run on you, and the most recent version of this profile is accessed, in order to ascertain how risky you are as a potential customer. If they feel you from your previous financial history, that you are likely to be a risky customer, or that they won’t make much money from you, they can turn down your application. This credit checking system makes or breaks any financial decision you make in the UK, as the bankers cannot override the results. The worst part of it all is that every time you apply for something new, the CreditChecker records your application, and this makes an impact (usually negative) on your CreditScore. Thus, blindly trying  everything to see what would work doesn’t do your credit score any favours, but we’ll discuss how to improve your credit score in another post.

So back to my story, we completed the application, and the banker ran a CreditCheck on us. We were opening a joint account, but due to some issues with some late payments in Mrs P’s past, our overall credit rating took a hit, and we had to wait for a consultation with “head office”. Lesson : Before you get married, please talk about your financial history. If you have bad credit, please let your spouse know so that you both know how best to deal with joint applications. Eventually, we were able to get the account opened  after some consultation with “head office” to discuss how ‘risky’ we were. While we were waiting for a decision, I said to the banker that I was pretty sure my credit score was nothing to write home about, as I had never taken any thought to it until now. I had no clue what my score was, especially as I have missed credit card payments in the past.

What is a credit score, and where does it come from?

In the UK, there are 3 credit reporting agencies : TransUnion, Experian and Equifax. Whenever you make an application for a financial product, the prospective lender collects your financial information from one or more of these agencies, and with the help of a propriety analytic & decision-making service, turns it into a 3 digit number on which they base their decision as to whether or not to offer you the financial service.

This 3 digit score is dependent on a number of factors :

• Your payment history – Are cards paid off on time?
• Your credit utilization, or how much of your credit you’re actually using. The less ‘need’ you have, the better.
• Length of your credit history. Apparently, the longer your records, the better.
• Recently issued credit.
• Types of credit used.

Out of interest, what do the scores mean?

• Excellent: 760-850
• Good: 700-759
• Fair: 620-699
• Poor: Below 620

During our search, the banker happened to tell us about one of his previous clients who was refused credit, but after 6 months, was able to monitor and change his credit scores for the better. According to him, the client signed up to one of the agencies that offered online credit monitoring, CreditExpert specifically. It’s not a free service, but the banker championed it as a good tool for monitoring your credit history and knowing/adjusting your financial actions that affect it.

So I hurried home and signed up for CreditExpert. Thankfully, they offered a 1 month free trial, so I could cancel if I wasn’t satisfied. It turned out I was blown away – by the amount of information these guys had on me. Every single store card, credit card, bank account, address connected to me since moving to the UK was displayed before me. I could see all my financial activities which contibuted to my credit score, (In this case, opening a joint account took me down 44 points, as I later found out) and amend them accordingly.

So I will be monitoring my scores often, and sharing with you all I learn on this journey.