LOQBOX – how saving can improve your credit score

LOQBOX is a new product that aims to improve your credit score as you save regular amounts of money. And there are no fees at all. Which sounds good, doesn’t it!

I’m tired of suggesting that people with poor credit scores should get a “bad credit card”, use it each month and repay it in full each month. That works work well if you can stick to the plan… but one 24 year old I was talking to said:

it’s making you walk a tightrope. The lenders like it because it shows if you are good at balancing, but if you slip up you are stuck with debt at an extortionate rate.

So an alternative that is less risky and which encourages people to save is well worth looking into.

How does LOQBOX work?

Setting up a LOQBOX

You sign up with LOQBOX . There is no credit checking at all. You won’t be rejected even if you are bankrupt or have just finished an IVA.

You decide how much you can afford to save every month for a year. This needs to be savings that you won’t touch until the end of the year. You can choose any amount between £20 and £500 – I’ll use £40 as an example for this article.

If you aren’t sure how much to save each month, go for a figure you are very confident you can manage every month for a year.

You are then set up with your own LOQBOX worth 12 times your monthly payment. Think of it as buying a box with £480 in it… but you have paid for this box by taking an interest-free loan of £480 for a year.

If all goes well

Your monthly payments to LOQBOX are taken by direct debit from your bank account. The payment date can be any date you choose. It’s a good idea to make this on your payday or soon after – that means you never see the money sitting round in your bank account tempting you to spend it!

Each monthly payment is used to pay the next installment of the loan:

• after 1 month you have paid in £40, your savings.  At the same time £40 of the money in your LOQBOX is used to repay the first month of your loan, so there is only £440 left in the LOQBOX;
• by the end of the year, you have saved £480 and the 12 loan repayments have cleared your loan, leaving nothing in the LOQBOX.

These monthly loan repayments are reported to Experian, Equifax and TransUnion (the new name for Call Credit), so they will show up on your credit records. Making these loan repayments on time is going to look good on your credit record and improve your credit score.

How to get your savings back

After your last payment, LOQBOX will suggest some new accounts to you to choose from, including current accounts, ISA (tax-free) accounts and other savings accounts. LOQBOX gets paid a referral fee when you open one of these – this is how they make their money and can offer their service to you for free.

If you open one of these suggested accounts, your money is transferred into there. It would be a great idea if you can then continue your savings habit, but they are all “easy access” accounts so you can take your money out straight away if you want.

If you don’t want one of these accounts, LOQBOX can transfer the funds back to your current account minus £30 for using what they call ‘Flexi Unlock’ – this charge is a substitute for the referral fee that they would have earned if you had opened one of the new accounts that they offer.

If you can’t open an account because you are rejected, then LOQBOX won’t charge you this £30 and your savings are returned to your bank account in full.

And if things don’t go well

If after a few months you realise you can’t afford your next payment, or if you just want to get the money you have saved back, tell LOQBOX.

Say you have made the first 5 months payments of £40 so you have saved £200.  Your loan is now down to 480 – 200 = £280 and your LOQBOX still has £280 in it. So the LOQBOX £280 will be used to repay the rest of loan and you can get your savings – the £200 – back.

You haven’t defaulted on the loan so this won’t harm your credit record. But the loans will have done your credit score less good than if you had carried on to the end.  Taking on any new credit harms your credit score for the first couple of months, so if you stop saving very quickly you may not have benefited at all.

It only goes badly if you ignore it

The only way LOQBOX can harm your credit record is if your direct debit is rejected. If you tell LOQBOX before this happens and ask them to return your savings, you won’t have a problem.

Can I trust a firm I have never heard of?

LOQBOX is an Appointed Representative of Credit Improver Limited, which is authorised and regulated by the Financial Conduct Authority. Your monthly savings are held in a ring-fenced, client account with Lloyds Bank. If LOQBOX goes bust, your savings in this account cannot be used to pay any LOQBOX debts.

How much will your credit score improve?

This is a hard question to answer as it depends on the rest of your credit record. But for monthly payments of £40, the effect on your credit score should be the same as if you had taken out a loan for £480 and repaid it over a year.

Who should look at LOQBOX?

I think LOQBOX is well worth trying if you have some money you can save every month and you have a “thin” credit record will little on it.

It has three major advantages:

1. it is much less risky than a bad credit card;
2. if things go wrong for you, you can still stop your credit record being harmed; and
3. you will end up with a small (or large!) savings pot.

It is best for:

• people with little or nothing on their credit record eg young people and people who have just come to the UK.
• people who have been insolvent (bankrupt, in an IVA or a DRO). After this has ended, no-one will give you credit at a good rate.
• people who had defaults which have disappeared after 6 years, leaving a “clean” but “empty” credit record.

It isn’t right if:

• your credit record is littered with problems. Here LOQBOX will make very little difference until all your problems go;
• you have a lot of credit card or other expensive debt. It’s better for future credit applications to repay/reduce this debt;
• you are struggling to pay your debts. Here you can’t afford the monthly saving – missing payments, getting defaults and possibly CCJs would be massively worse for your credit score than any improvement from LOQBOX;
• you want to save up an emergency fund you may well need during the year. That money needs to be in an easy access account – try a credit union or look at Chip or Plum, apps that help you to save.

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