Credit Scoring Can Affect the Rate Offered by Credit Card Companies
Those looking for a credit card will often find that their credit score will affect the type of deal they are offered.
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6 December 2009
Credit scoring is how a lender such as a credit card company rates potential customers and their history with loans and other types of credit. Someone who has not paid their mobile phone bill or loan payments on time in the past may have a poorer credit score because they may be judged to be less reliable when it comes to paying bills of any nature on time. That is why it is always important to pay your credit card bill on time, paying off at least the minimum amount each month.
Those who do have a good credit score are more likely to be offered the advertised interest rate on a credit card, rather than a higher rate.
They could, for example, be offered 17.% APR variable (representative) on the Barclaycard Platinum with Balance Transfer credit card. Holders of this card can also benefit from 0% on balance transfers for 22 months, so long as the balance is transferred within 90 days of account opening, with a 3.2% handling fee. Those with a lower credit score may be offered a rate lower than the one advertised.
However, not all lenders may have the same attitude to credit scoring. Different companies may be looking for different things so looking unattractive to one lender does not necessarily mean someone will look unattractive to all lenders.
Those considering applying for a credit card can access their credit report ahead of time through an agency such as Experian, Equifax or Callcredit, which will show the credit score information that card companies have access to. Other factors likely to improve credit rating include being enrolled on the electoral register, having the same home address and employer for a significant amount of time and having a landline as opposed to just a mobile number.
For people who know they have a poor credit score and are unlikely to be offered one of the most popular credit cards, there are cards that can help them build up their credit rating. Capital One, for example, offers the Capital One Classic credit card. This has a rate of 34.9%, but this rate can be reduced once holders have shown they can manage their account responsibly and pay off bills on time. Holders can also apply for email alerts to help them stay in control of their finances and can be offered a low, easy-to-manage credit limit from £100. Those considering the Capital One Classic credit card are more likely to be accepted if they are on the electoral roll and are over 18.
Another option for those with a low credit scoring is a prepaid credit card. These do not require a credit history as they must be preloaded with money before they can be used for payments, so it is impossible to get into debt when using them. The cards work in much the same way as a traditional credit card; they can be used for in-store payments using a chip and pin device, or for shopping online.
The O2 Cash Manager Prepaid Card is one of the best on the market since it is available free of charge with no set up cost. However, it is only available to O2 customers. Another option is the Freedom PAYG PrePaid MasterCard, which costs £9.99 with no service fee.
Written by Alex Adams
