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Mind the gap

Monday, 31 December 2012

My youngest son is starting to think about venturing into the property market only to find that his credit rating isn’t good enough. This is not because he has insufficient salary or a debt problem except that he has never been in debt of any sort therefore he has no record. So finally taking his Dad’s advice he has taken out a credit card as the quickest way to establish a record. He is not alone as 57% of UK adults are at risk of having an application for credit turned down by a mainstream lender according to a new report. The ‘Mind the Credit Gap‘ report commissioned by aqua credit cards suggests that even people with a good credit rating and earning more than £50,000 could have a credit application turned down. Since the financial crisis lenders have significantly tightened their lending criteria, to the extent that 69% of women and 82% of young people aged between 18 and 24 years are now likely to fail a credit check.

This report highlights the importance of building up a strong credit score as people risk being turned down by utility providers, mobile phone companies and Internet Service Providers if they fail to pass a credit check. Despite the importance of a strong credit score, 79% of people do not know what their credit score is, and more than half have no idea how to improve it.

Using a credit card is a useful way to establish a credit record if of course you pay it off each month. According to 59% of UK consumers will fund Christmas using credit cards which means some will run the risk of falling into longer term if the card balance isn’t cleared in the New Year. If this is the case then maybe one answer might be the new three-year balance transfer credit card with a set interest rate of 4.9% which has been launched by Barclaycard. It’s the cheapest card on offer of its kind and there is no balance transfer fee. Without wishing to blow Barclaycard’s trumpet this is actually an impressive offer and even beats the personal loan market where the cheapest rate across this term is 5.4%. No doubt there will be a few ‘fast followers’ of this move.

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