Warning to tens of thousands over simple mistake which could impact your credit score – how to avoid it
TENS of thousands of people are being urged to check their credit report over a little-known mistake that could wreak havoc on your score.
It comes as 75% of British divorcees say that their credit score has been negatively impacted by ‘financial association’ with their ex, according to MoneySuperMarket.
Having a decent rating is vital if you want to take out a mortgage or credit card.
Even if you are accepted for a credit card, loan or mortgage, lenders only need to provide 51% of successful applicants with the advertised offer.
And there’s no guarantee that you’ll get the credit limit you need.
So, having a decent credit score is usually a golden ticket to the best deals, too.
But if you’ve got divorced and haven’t financially disassociated yourself from your ex, your score could still be taking a hit.
According to MoneySuperMarket, some 233,000 British divorcees have not made this simple move in the last five years alone.
It means that newly single Brits are leaving themselves vulnerable to the risk of paying more interest on borrowing – or not being accepted for new credit at all.
Mum-of-two Alice, who is currently getting divorced, discovered the impact of financial association when her soon-to-be ex-husband’s finances started impacting her own credit report, and she cannot move home or get a new car on finance.
“Ian (not his real name) had racked up even more debt that I had no idea about while he was out of work a few years ago.
“They told me I was 50% liable for that debt.
“And because of that debt, we’re still tied through financial association.”
She added: “It’s ruined so many elements of my life. I’ve been unable to get credit for a new car, which I desperately need.
“My partner and I want to move out of the flat that now holds so many bad memories.”
WHAT IS FINANCIAL ASSOCIATION?
COMMENT by James Flanders, The Sun’s Chief Consumer Reporter:
Taking out shared finance with someone makes you “financial associates”.
These shared agreements show up on your report and could potentially affect your credit score, as a potential lender may look at both your and your associate’s credit reports when you make new applications for credit.
This gives them an idea of how well you manage your finances and helps them decide whether to lend you money.
Your financial associates appear on your report, and companies may check their credit history when deciding whether to approve you.
This is because your financial associates may affect your ability to repay debt.
As a result, you could be charged a higher rate of interest for loans, credit cards, monthly insurance premiums, car finance, mobile phones or even your mortgage – or be refused altogether.
You can see who you’re connected to by checking the “financial associations” section of your credit report.
Even if you close joint accounts when you divorce, the financial association will remain on your credit report indefinitely until you manually request for it to be removed.
This removal is called a notice of a financial dissociation.
Kara Gammell, financial expert from MoneySuperMarket said: “Breaking up is rarely easy to do, either emotionally or financially, but there are ways you might be able to make separating your finances less painful while protecting your future.
“Changing the legal status of your relationship doesn’t show up on your credit report and doesn’t affect your credit score.
“However, it is likely that during your relationship you’ve had financial agreements in both of your names, for example, a mortgage, a loan or a bank account.
“The end of a relationship – divorce or otherwise – has no influence on the financial association.
“You can request to be Financially Dissociated when the shared credit agreement has ended.”
CHECK YOUR SCORE
EVERYONE has separate credit scores with each of the three credit reference agencies – Experian, Equifax and TransUnion.
Each holds different information about you, including details of credit, mortgages, county court judgements and individual voluntary arrangements.
The CRAs provide customers with three discrete credit scores, but lenders don’t use these.
Lenders check your credit file instead, but they don’t tell you which agency they use.
However, a bad score is a sign that you are likely to have trouble with credit applications.
You can check your report for free with Experian, while your Equifax and TransUnion files can be viewed for free through ClearScore and Credit Karma.
For a small cost, you can visit checkmyfile.com to see your Experian, TransUnion and Equifax reports in one place.
OTHER WAYS TO BOOST YOUR SCORE
Whether you’re taking out a mobile phone contract, credit card or buying a home, then having a decent credit history is the key to getting accepted and borrowing cheaply.
You can improve your prospects by following these extra tips.
Being on the electoral roll is one of the simplest ways to boost your score, as it helps banks verify your identity.
With Experian, it can lift your rating by 50 points.
It only takes a few minutes to register.
You can do this by visiting www.gov.uk/register-to-vote.
If you pay a bill manually each month, consider setting up a direct debit.
It shows you are financially reliable and removes the risk of forgetting to make a payment, which can damage your credit score.
It’s also vital to keep credit card balances to no more than 30% of their limit to show lenders you are not over-reliant on credit.
Don’t make too many credit applications, as this can be a sign of financial distress.
You should also check for any errors, as court judgements or credit defaults could reduce your score by 250-350 points.
If one was registered unfairly, such as if you missed a bill when moving house, challenge it through the lender or court.
Companies can also make errors.
If you spot something on your report that isn’t right, ask for it to be removed.
REPORT YOUR RENTAL PAYMENTS
RENTERS who want to boost their credit score can also report their rent payments to three of the major credit reference agencies to prove they can pay their bills on time.
CreditLadder introduced rent reporting to the UK for all tenants in 2017.
Two out of five households rent, and CreditLadder can report those rent payments to all the main credit reference agencies, which can help you improve your credit history and score.
It is free to report your rent payments to one credit agency.
Other services, like Loqbox, can help boost your score by up to 300 points within 12 months.
It works by lending you a minimum of £240.
This money stays locked away in your Loqbox account.
Over the year, you pay £20 a month into your Loqbox account to pay back the loan.
Each month, Loqbox reports to the credit agencies that you’ve made your repayments, which increases your credit score.
After 12 months, the loan is paid off and you can withdraw the £240 you saved back into your bank account.