Getting a 'good' credit rating

Rwac · 28 May 2008 at 14:20

What is the best way for someone who has never borrowed any money, nor never had any financial issues, to actually get some form of credit 'rating'.

I understand mobile contracts help, which I have had for 6 years.

To use an example, purchasing a new car there are two options:

Finance through the main dealer
or
Personal loan

Both for the same amount, at the same rate and period.

I am fearful of applying for a mortgage in years to come with the credit rating of a 7 year old, and being shafted like a choir boy.

Morba · 28 May 2008 at 14:23

personal loan would be a better rate (almost garenteed).

get a credit card, put some petrol on it each month then pay it off before the interest is put on.

mrk · 28 May 2008 at 14:24

Car purchase or a regular monthly payment of "x" kind would be the best way to get your rating up so you have a better chance of being accepted for later finance deals.

When I was a student I had a £15/month Orange mobile contract which I had for a few years and then one day forgot to pay the monthly bill and ended up paying £92 the following month!

Long time ago though and over time as you start paying for more regular things monthly like car insurance, broadband etc it all builds up your score.

Most credit cards these days have 0% interest free period, make note of these and use them wisely as you will end up paying little to no interest and have a healthy rating!

Rwac · 28 May 2008 at 14:29

Morba said:
personal loan would be a better rate (almost garenteed).

get a credit card, put some petrol on it each month then pay it off before the interest is put on.

In this case the car finance deal is at a better rate than any personal loans available.

Car finance through main dealer:
4.9% (PCP)
7ish% (Standard finance purchase)

Due to not being a house owner and lacking any significant credit rating, all personal loans are significantly higher.

Don't worry the car isn't new, I am not bonkers, 56/07 plate

You reminded me, this year I decided to pay my car insurance monthly (have always paid the lump sum in the past), as it was only £50 difference. I guess it's not all bad after all.

mrk · 28 May 2008 at 14:34

Paying monthly is good for stuff like that whilst some will say "well why not save the £50-£100 and pay all at once?" not realising that that saving is actually well spent by paying monthly resulting in better future opportunities where credit rating is concerned

[FnG]magnolia · 28 May 2008 at 14:45

Goatyman said:
In this case the car finance deal is at a better rate than any personal loans available.

Car finance through main dealer:
4.9% (PCP)
7ish% (Standard finance purchase)

Due to not being a house owner and lacking any significant credit rating, all personal loans are significantly higher.

Don't worry the car isn't new, I am not bonkers, 56/07 plate

You reminded me, this year I decided to pay my car insurance monthly (have always paid the lump sum in the past), as it was only £50 difference. I guess it's not all bad after all.

Your yearly payment on car insurance is (1) cheaper and (2) just as likely to build a credit score, i.e. none. A direct debit is not the same as a outgoing monthly agreed loan payment. You've just cost yourself £50 with no benefit

platypus · 28 May 2008 at 14:47

[FnG]magnolia;11773988 said:
Your yearly payment on car insurance is (1) cheaper and (2) just as likely to build a credit score, i.e. none. A direct debit is not the same as a outgoing monthly agreed loan payment. You've just cost yourself £50 with no benefit

Except of course the relative ease of paying off monthly instead of having to come up with a lump sum.

Morba · 28 May 2008 at 14:48

but the insurance is a loan agreement isnt it? which is paid back by DD + interest.

[FnG]magnolia · 28 May 2008 at 14:48

I thought we were talking about buidling a credit score not the relative merits of convenience vs best value?

weringo · 28 May 2008 at 14:50

If I pay off my credit card in full each month will this increase my credit rating? Or do i have to make minimum repayments?

NeoNemesis · 28 May 2008 at 14:52

Its very simple to build up a credit rating with no risk.

Ask your bank to provide you with a credit card. Buy something on it. Pay the card off immediately - this is easiest if you have an online banking service.

Doing it this way means you will never incur any interest charges so it doesnt matter what type of card at what interest rate.

Neo

NeoNemesis · 28 May 2008 at 14:53

weringo said:
If I pay off my credit card in full each month will this increase my credit rating? Or do i have to make minimum repayments?

Paying it off in full will boost your rating. It shows that you can manage your money effectively, making you a good prospect to lend to.

Morba · 28 May 2008 at 14:53

NeoNemesis said:
Its very simple to build up a credit rating with no risk.

Ask your bank to provide you with a credit card.

Getting a credit card from a bank after a discharged bankruptcy? about as likely as the OP winning the lottery...

Dolph · 28 May 2008 at 14:54

Goatyman said:
In this case the car finance deal is at a better rate than any personal loans available.

Car finance through main dealer:
4.9% (PCP)
7ish% (Standard finance purchase)

Due to not being a house owner and lacking any significant credit rating, all personal loans are significantly higher.

Don't worry the car isn't new, I am not bonkers, 56/07 plate

You reminded me, this year I decided to pay my car insurance monthly (have always paid the lump sum in the past), as it was only £50 difference. I guess it's not all bad after all.

Are those APR or flat? Most car dealers quote flat and it's not the same thing.

5% flat is normally around 10% APR, maybe a little more depending on whether they are taking from the base rate or the finance house rate.

Dolph · 28 May 2008 at 14:55

NeoNemesis said:
Paying it off in full will boost your rating. It shows that you can manage your money effectively, making you a good prospect to lend to.

The best balance is to pay more than the minimum, but not quite the maximum if your aim is to build up your credit limit. The bank want to know you can manage your budget over a longer period, something that paying in full each month doesn't show, as you're just using your credit card like a debit card.

Rwac · 28 May 2008 at 14:59

Dolph said:
Are those APR or flat? Most car dealers quote flat and it's not the same thing.

5% flat is normally around 10% APR, maybe a little more depending on whether they are taking from the base rate or the finance house rate.

I need to do a lot more reading into the whole situation but, I believe it was 4.9% , and I was also told 2% flat.

When I compared the total amount paid back, and the interest paid back, it was more through the personal loan?

Edit: Nice idea on the credit card. I have never used/needed one, I shall add it to the list of things to consider.

As for the paying insurance monthly, 1. It was more convenient for me, and 2. I deal with a separate finance company on behalf of the insurer so I assume it is therefore going to improve credit rating. Or am I wrong to think this?

weringo · 28 May 2008 at 15:02

Dolph said:
The best balance is to pay more than the minimum, but not quite the maximum if your aim is to build up your credit limit. The bank want to know you can manage your budget over a longer period, something that paying in full each month doesn't show, as you're just using your credit card like a debit card.

That's what I thought, the problem is that as it's my first credit card the interest rate is high, if I don't pay off the balance in full I get charged interest on every purchase that month. Whereas paying it off in full means no interest to be paid.

Dolph · 28 May 2008 at 15:02

Goatyman said:
I need to do a lot more reading into the whole situation but, I believe it was 4.9% , and I was also told 2% flat.

If it was a genuine 4.9% APR, bite their hand off, that's less than the BoE rate.

When I compared the total amount paid back, and the interest paid back, it was more through the personal loan?

This suggests that it's most certainly not 4.9% APR though, unless they are quoting you with loan protection insurance and the bank loan doesn't have it...

mrk · 28 May 2008 at 15:02

The thing I anxiously look forward to in about a years time is when my car payments end so I won't be paying £205 a month any more but instead putting that money together with my car in part ex for a new car and no more monthly payments apart from insurance, man it's goig to feel good with having that much extra monies extra in the bank each month

Rwac · 28 May 2008 at 15:14

Dolph said:
If it was a genuine 4.9% APR, bite their hand off, that's less than the BoE rate.

This suggests that it's most certainly not 4.9% APR though, unless they are quoting you with loan protection insurance and the bank loan doesn't have it...

Sorry I think I worded that badly. The amount paid back was more with the personal loan. So the amount paid back was significantly less with the main dealer finance. They did mention it was quite a bit less than the BoE rate of 5% flat or something like that.