Checkmyfile.com warns consumers about to move home that applying for credit after the removal van has arrived can cost them dearly in higher interest rate charges.
Barry Stamp, joint managing director of the online consumer credit reference agency, says: “Moving house can cost people hundreds of pounds in extra interest charges because their credit score will reduce automatically when they temporarily drop off the electoral roll, and other important factors in the calculation of their credit score change significantly.
“An increasing number of lenders now set interest rates to match the risk which is determined by credit scoring. The most credit worthy people are offered the most attractive deals, and a decrease in your credit score will therefore translate to higher cost loans and credit cards.
“We calculate this will increase the cost of a typical 5,000 loan by 255 per annum in interest charges. This can be avoided completely if the application is made prior to the move, rather than afterwards.
“After moving house, answers to questions such time at address, time with bank, and time with employer, can often move from several years to just a matter of months, and that will make a big difference to a credit score.”
Because being matched at a current address to the electoral roll is often used as a component of a credit scoring calculation, the lag between moving, notifying the local electoral registration officer and having the credit reference agency databases updated to reflect the move can be as long as 18 months. Recovering a credit score to previously held levels can therefore take some time.
Stamp adds: “For all these reasons it is advisable to make applications for credit well before a house move has taken place, to take advantage of the existing, hard earned credit score associated with a longstanding current address.
“Some critics of credit scoring argue that a simple move of house cannot change the financial habits and disciplines of most people, but default statistics say otherwise. Consumers are, in reality, a greater risk to lenders when they move house, because that is when many are distracted and payments are inadvertently missed. Cash flow is often brought under more pressure because of new found costs and expenses and, usually, an increased mortgage payment needs to be found from the family budget.”
Checkmyfile.coms advise home movers to ensure they arrange to pay all regular payments by direct debit well before the move, and apply for credit at least two months before the move.
People about to move should also register on the electoral register with their local authority as soon as they have moved, and ensure that all post is redirected automatically from the old address for at least 12 months.
They should also check their credit files three months after moving to make sure there are no stray accounts still registered at their previous address, which could leave them at unnecessary risk of identity fraud.