LIBF DipFS Unit 3 – Sustainability of an Individual’s Finances Jan 2023 Exam

Pre-release Case Study Information and Data Case study 2

Morgan and Sam are both 27, and both have settled jobs working for their local hospital in Sheffield in
administration roles. Morgan and Sam have been together for six years. They have mostly stayed in control
of their finances over the last few years and now have set up direct debits for all their payments to help bring
their budget under control.
Morgan has had some personal debts and occasionally missed the payment date for a credit card.
Morgan also had a payday loan about six years ago, which was fully paid off. Sam has never had any credit
from any financial services provider. Morgan and Sam did have some issues with making payments to a utility
company about a year ago, but this is all under control now.
Morgan and Sam currently live in rented accommodation and have done for several years, while saving for a
deposit for a house. They have started to look at houses and the money they will need for all the expenses
associated with buying their first property.
Morgan and Sam are looking to buy a property in the region of £300,000 and currently have just over £31,000
saved. They want to save more money before they move and have calculated that within three months, they
should have the required amount for their deposit, moving costs and the furnishings that they will require.
Sam’s parents recommended that they speak to a mortgage adviser. Morgan’s parents also suggested that
they ensure their credit history is good before they start the process of buying a property. Morgan and Sam
checked their scores with a credit reference agency, and both were rated as ‘fair’.
Morgan and Sam have started to investigate why their credit scores are rated as fair and how they can
improve their scores.

Research

The first article looks at what credit scores are and how they are used.
“Good credit scores
What is a good credit score?
Your credit score gives you an idea of how companies may view you when you apply for credit.
A higher score means lenders see you as lower risk. So, a good score will be good news if you’re hoping to get
a new credit card, apply for a loan, or even a mortgage. Whatever you need credit for, making sure your
score’s good, or even better excellent, means you’re more likely to be accepted, and offered better rates.
Here, we’ll take a look at what a good credit score is, how it’s calculated, and what factors make it ‘good’.
No ‘magic’ number
There’s no ‘magic’ number when it comes to your score. Different companies will be looking for different
things in potential customers, so while you may tick all the boxes for one lender, you may not tick all the
boxes for another.
How is a credit score calculated?
Whenever you apply for credit, lenders will look at information from your credit report, application form, plus
any information they hold on you (if you’re an existing customer). All this data is then used to calculate your
credit score. Every lender has a different way of calculating it, largely because they all have access to different

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information but they also have different lending criteria. Generally, the higher your score, the better your
chances of being accepted for credit, at the best rates.
How can you get a good credit score?
There are plenty of things you can do to help improve your score, but it can take time and patience, and some
will-power too.
Ways to improve your score:
• Register on the electoral roll at your current address. This helps companies confirm your identity.
• Build up your credit history. If you have little or no credit history it can be difficult for companies to
score you, which can result in a lower score.
• Pay your accounts on time and in full each month. This shows lenders you can handle credit
responsibly.
• Keep your credit utilisation low. This is the percentage of your credit limit you actually use.
For example, if you have a limit of £3000 and you’ve used £1500 of it, your credit utilisation is 50%.
A lower percentage is usually seen in a positive light and should help your score go up. To help
improve your Experian Credit Score, try to keep your credit utilisation at 25%.
• Check for errors and report any mistakes on your report. Even small mistakes, such as a mistyped
address, can affect your score and could be enough for a lender to refuse you credit. It’s worth
checking your credit report to make sure all the information on it is accurate and up to date. If you do
spot a mistake, contact the provider directly and ask them to change it. If you need help, we can raise
a dispute with them on your behalf. If there is negative information that is correct but occurred during
special circumstances (such as a period in hospital or losing your job) you can ask us to add a Notice of
Correction to your credit report explaining this.
• Monitor your credit file for fraudulent activity. If fraudsters gain access to your personal details, they
could take out credit in your name without you being aware. If you see something on your credit
report that is wrong, such as an application you don’t recognise, Experian’s specialist fraud support
team can help. See what to do if you’ve been a victim of identity fraud.
• Avoid moving home a lot if you can. This isn’t always possible to avoid, but it’s worth bearing in mind
that lenders like to see stability in your circumstances. Moving home frequently may make lenders
think you could be having trouble paying rent, for example.
• Keep old accounts open and show a long credit history. It can be good to show lenders that you can
successfully manage multiple credit accounts, especially over a long period of time. Most credit
scoring models tend to reward you for having long-standing, mature credit accounts, and for only
using a small portion of your credit limit. For more information, see our guide on what to do with
unused credit cards.
• Consider getting a credit builder card. If you’re looking to improve your credit rating, then a credit
builder card can help rebuild your credit score. They typically have low spending limits and high
interest rates. When you first get a credit card, it might briefly cause your score to drop. But used
well, it can help you build your score over time.
Once you’ve got your score where you want it to be, here’s our tips on how to keep it healthy:
• Limit the number of credit applications you make. Don’t be tempted to make too many in a short
space of time as this can make lenders view you as overly reliant on credit, and a higher risk.
• Close unused accounts. If the amount of credit available to you is too high, lenders may think you
won’t be able to handle any more.

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 • Keep up with your payments. Delinquent and defaulted accounts will harm your score. Accounts are
labelled delinquent when you’re late on payments, and defaulted accounts are when your relationship
with the company has broken down due to several missed payments.
• Only borrow what you know you can afford. If you get into trouble with debt that leads to CCJs, IVAs
or even bankruptcy, these will stay on your credit report for up to six years and will damage your
score.
• Keep an eye out for fraudsters. Their activity could hurt your score badly. So, try to check your credit
report for any suspicious signs.”
(Source: www.experian.co.uk)

The next article looks at how credit scores are used to help lenders make decisions on a person’s mortgage
application.
“What credit score do I need for a mortgage?
There isn’t a specific credit score you need for a mortgage, and that’s because there isn’t just one credit score.
How do lenders make their decisions?
Not all lenders think the same way, and they may have different ways of making their decisions. But all of
them will look at some key factors to help them decide. These include:
• information on your credit report including your credit history and public record data (eg CCJs and
IVAs)
• information you’ve given them on your application form
• information they may already hold on you, for example if you have a bank account with them
• their own lending policy, which may be different from those of other lenders
Looking at your credit report will give them a detailed insight into your credit history, and will show things like
how much you owe on credit cards, if you’re registered to vote and if you’ve missed payments in the past.
They’ll put that all together and give you a credit score of their own.
Mortgage affordability
But it isn’t just about your credit score. Mortgage lenders will want to see if you can afford your mortgage
before they lend you the money and be less of a risk to them. So, as well as looking at your credit history they
will look at how much you earn, and how much goes out. Not only credit repayments but regular, fixed costs
like childcare, council tax, season tickets and other outgoings you have on a monthly basis.
If you can show them that you could afford your monthly mortgage payments even if your life situation
changed or if interest rates (and your monthly payments) went up, it may help you get a mortgage even if
your credit score is not the highest.
What is a good credit score to get a mortgage?
The Experian Credit Score is based on the information in your Experian Credit Report. It runs from 0–999 and
can give you a good idea of how lenders are likely to view you. The higher your score, the better the chance
you have of getting the mortgage you’re after.
This table is a general guide to how lenders may see you, based on your Experian Credit Score – of course
there are other factors involved, in particular how much deposit you have – which would bring the
loan-to-value (the percentage of the overall cost that you need to borrow) down and could give the chance of
lower interest rate deals.

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 Excellent (961–999) You could be in line for the best mortgage deals with lower interest rates.
Good (881–960) You could get most but not all the best mortgage deals.
Fair (721–880) You could get good mortgage deals with reasonable interest rates.
Poor (561–720) You may get mortgage deals, but with higher interest rates.
Very Poor (0–560) You may be declined a mortgage or find it harder to get one without very high interest rates.”

(Source: www.experian.co.uk)

Morgan and Sam have made some initial enquiries for a mortgage on a 25-year mortgage term and found the
three mortgage deals below, suitable to their current credit score, which they are considering.
Option 1: The West Brom
• 4.89% variable discounted for five years.
• £1,000 upfront fees. Fees need to be paid at the start of the mortgage.
• Monthly repayment of £1,561 per month. No other benefits or fees.
Option 2: Halifax
• 4.58% fixed for five years.
• £999 upfront fees. Fees need to be paid at the start of the mortgage.
• Monthly repayment of £1,513 per month. No other benefits or fees.
Option 3: Yorkshire Building Society
• 5.78% fixed for ten years.
• £0 upfront fees.
• Monthly repayment of £1,703 per month. No other benefits or fees.
(Source: www.gocompare.co.uk)