Why You Can't Get Credit

A few people have asked me why they can't get credit recently. The bizarre thing is that they all have drastically different financial profiles.

You see, when it comes to credit ratings, there are lots of paradoxes. (Or is it parodices? Paradoxeseses? Get the genii working on the problem immediately!...Or is it geniuseses?) Rumours, myths, fables, tall stories and superstitions add up to conflicting information about what affects your credit rating and in what way. Here are some of them:

Neil's Credit Rating Paradoxeseseseseses

You've borrowed too much.
You've borrowed too little.

Lenders won't want to lend you money if they think your debts are too high, for obvious reasons. However, lenders want to know how responsibly you handle debt, so they want to see a credit history. Therefore if you've never had credit they don't know you, and what they don't know scares them.

Keep your credit limit high.
Lower your credit limit.

Some people suggest that you should keep your card balances at 25% of your credit limit or lower. They argue that it makes you look more responsible, because you're not running dangerously close to the edge. Others say that you should lower your credit limits when you can in order to decrease your total credit facility, thus making other lenders more comfortable when lending to you.

If you must know, I'm more inclined to favour the latter.

Get rid of old credit cards.
Keep hold of your old credit cards.

Standard advice is not to have too many credit cards, as your overall credit facility will be seen as too high. However, some argue that by keeping old credit cards you seem loyal, and credit bureaus reward loyalty.

I don't see how the latter could work, unless you continue to use all your old cards, as credit bureaux can see if there's any activity on them. But more importantly, who cares! You don't need credit bureaux to look favourably on you anyway - it's the lenders who count!

Don't apply for credit too often.
Keep applying for credit - it's a numbers game.

It's well known that when you apply for credit a lender will search your credit record and too many searches will reduce your credit score. However, Cliff D'Arcy, a regular contributor for The Fool, is an infamous credit-card rate tart, and he says: 'Don't feel bad if your application for credit gets rejected...I get turned down for credit more often than not.'

You have a credit score.
You have lots of credit scores.
You have no credit score.

These are the cruces or cruxeseses of all the paradoxeseseseseseses. It boils down to the fact that lenders come up with their own rating system based on what they believe makes a customer suitable. For all we know, many of them might not have scores at all, they might just say she's Excellent, he's Good and this one's No Way!

I think you shouldn't worry too much about the above issues. Concentrate on the big things that will definitely improve your rating. The big four in my mind are:

• Pay your bills on time. If you can't do this, don't ignore the problem! Contact the lender to explain the situation and discuss what you can do about it.
  
  
• Keep your debts low.
  
  
• It helps to have a long credit history.
  
  
• Pay your debts off straight away, so they can see you're good with money.

There are other factors that will affect your credit rating with some lenders. The main ones are:

• Whether you're on the electoral role.
  
  
• How long you've been living at your current address.
  
  
• How long you've held your bank account for.

Finally, you should check your credit report regularly for inaccuracies, and to ensure you're not missing something important! You can see your credit report online through The Fool.

> Yo Foolseseseseseseses! Visit our fantastic Dealing With Debt discussion board and our Get Out Of Debt information centre.