Have you ever seen those adverts asking people to check out their credit score and thought, that doesn't affect me?
Well, you might not need to check your credit score right this very second, but you do need to make sure you look after and nurture it otherwise life might become a bit difficult and annoying.
Being posted and therefore out of the country for a long time can make some lenders anxious about your ability to pay off the loan as they are used to the civilian way of life and not the more transient lifestyle of those in the armed forces.
If you want to get a mortgage, take out a loan or even simply buy the latest smartphone, your credit score can affect your ability to do so.
So, the question is, what can you do to make sure lenders still see you as someone they feel confident in lending money to?
What Is A Credit Score?
Your credit score is an indication to lenders as to whether they can rely on you to pay back the money they lend you. It can also define how much deposit you might need to pay, the interest rate you will be charged and the length of your loan
Imagine you have two friends asking to borrow money.
One of them has borrowed money before and gave it back to you as soon as they got paid and the other fobbed you off with excuse after excuse as to why they couldn't pay you back and it took months and perhaps several small payments to eventually get it back.
Which friend are you more likely to lend some money to again?
Fair Isaac Corporation, also known as FICO, created the credit score system still used by many financial institutions today.
The FICO score range is as follows:
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
Your score will depend on five main points:
- Payment history (35%)
- Debt burden (30%)
- Length of credit history (15%)
- Types of credit used (10%)
- Recent searches for credit (10%)
Deployed Or Posted?
Mike Jenkins, Director of veteran-focused insurance company 'Services Family', said:
"A deployment of under six months is unlikely to make any difference as long as you pay your bills back home.
"A posting out of the country or EU for a year or so can cause a thin or anomalous ‘credit’ file and the gap in history can work against you.
"This gap can be explained when you speak to someone but may affect an online application."
Being posted overseas can affect lenders' confidence in your ability to pay back the loan but, have no fear, there are some things you can do to help get back in their good books.
Does Registering To Vote Help Your Credit Score?
In a word, yes.
Either get on the electoral register - a list of names and addresses of people who are registered to vote in public elections in the UK and Northern Ireland - or make sure you stay on it by registering at your family home. This is crucial as it helps lenders verify your identity.
When you are deployed or posted, you haven't permanently moved or emigrated. You are simply working overseas and there's nothing wrong with that.
Another good thing to do is a simple bit of admin.
Ensure all credit cards, mortgages, bank accounts, gas/phone/electric bills etc are registered to your electoral register address. That will help confirm that you are who you say you are even further.
One way to increase lenders' confidence in your ability to pay off your loan is to never miss a payment. Don't be the friend who never pays back that loan because they might be a bit unsure next time you ask to borrow some money. Mike said:
"If you’re posted overseas, keep your UK bank account turning over and perhaps a credit card in the UK which you can pay off automatically every month by Direct Debit.
"Don’t get overdrawn or miss credit card payments.
"For personal loans or mortgages never miss payments without speaking to your account manager – they can sometimes offer ‘payment holidays’ and these are much better for you and your credit score than missing a payment."
Should You Cancel Unused Credit Cards?
The answer depends on how much debt you have accumulated.
If you already know you have an excellent credit score, closing a credit card account you never miss a payment for, are actively trying to pay off and not add more debt to is unnecessary.
If your balance is at zero and you can trust yourself not to spend lots of money on it, then having a credit card is proof to lenders that you are a reliable person to lend money to.
However, if you are finding it difficult to make payments and are accumulating debt, try your best to focus on paying your credit card off and then close the account so that you don't find yourself tempted to return to bad habits.
A Good Credit Score
Essentially, if you want to nurture your credit score while posted overseas - or just generally - take some time to get these admin jobs squared away as soon as possible and maybe one day you will start experiencing the benefits of being financially savvy.