Get into a bit of easy debt and pay it off: How to avoid the fate of Kirstie Allsopp's mother-in-law and beef up a 'thin' credit file
When it comes to your credit rating it doesn't pay to think thin, according consumer credit reporting agency Equifax.
The pitfalls of a thin credit file hit headlines yesterday when Kirstie Allsopp revealed her mother-in-law was turned down for a mobile phone contract because she didn't have a credit rating.
Your credit rating is a record of all of the financial information that is held about you: from your ability to pay bills on time to whether or not you've ever taken out a loan.
Having a 'thin file' means there is scant data on your credit history, which makes it difficult for banks, building societies and other financial services providers to get an understanding of your ability to manage credit.
Kirsty Allsopp: the TV presenter revealed on Twitter that her mother-in-law had felt ‘personally insulted’ when she was turned down by Carphone Warehouse for a mobile phone contract
Miss Allsopp, 43, revealed that Gretchen Andersen, 85 – who is mother to Miss Allsopp’s partner of ten years, Ben, 55 – was ‘personally insulted’ when she was turned down by Carphone Warehouse for a mobile phone contract. Mrs Anderson felt she was being told she ‘wasn’t good enough to have a phone’.
Mrs Andersen owns an antiques shop in Kensington, West London, where she employs three people and has had a bank account for 60 years.
But because she has never borrowed money and doesn't pay her utility bills by direct debit, she does not have a credit history and was turned down for a phone contract.
Financial experts warn that Mrs Andersen's situation reflects a wider problem affecting thousands of older people who handle their money in a similar way.
To avoid the fate of Mrs Andersen, experts suggest it's a wise move for anyone with a ‘thin file’ to take steps to beef up their credit score and give prospective lenders more confidence in their ability to manage credit.
According to Andrew Webb, Head of Equifax Personal Solutions, consumers can easily improve their credit history.
He says: 'Firstly, make sure you are registered on the electoral roll as this is used by many companies for identity verification purposes and in order to combat identity fraud.'
Next, says Mr Webb, you need to think about creating a credit history by using sources of credit available to you, including store cards, credit cards and simply paying for utilities by direct debit.
'This will help you to demonstrate to a consistent pattern of meeting financial commitments,' he says.
However crucially you must always pay off any credit on time and in full or you will do even more damage to your credit rating.
Andrew Webb adds: 'Keeping your credit balance low and within your credit limit indicates good money management, and settling debts, such as personal loans or hire purchase agreements, in full demonstrates responsibility in repaying debts.'
Anyone planning to apply for credit, or who has recently had an application declined, should first get a copy of their credit file by contacting one of the credit report sites, such as Equifax, Callcredit or Experian.
Credit score: keeping your credit balance low and within your limit indicates good money management, and settling debts, such as personal loans, demonstrates responsibility in repaying debts
According to James Jones, head of consumer affairs at Experian, credit scoring looks at a wide range of factors to identify the likelihood you’ll repay any further borrowing you take out.
Having low balances on revolving credit products such as store cards and mail order accounts, he says, is a huge boon for credit scores.
A less widely known factor is the age of your credit agreements, where extra credit-scoring points are awarded for more mature credit accounts.
As well as understanding the significance of your credit score, you also need to know how to repair it if it shows any negative aspect.
If you find errors or paid-off debts which haven't been updated on your report, write to the particular credit agency immediately, asking for them to be corrected.
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