Have you ever wondered what exactly a credit rating is and how lenders use it when you apply for credit?
When you apply for credit, the lender will make a decision on how much you can borrow and indeed, whether you can borrow at all, by looking at the information you provide on your application form as well as examining a record of your credit history.
There are 3 main agencies in the UK that compile credit histories – Equifax, Experian and CallCredit. Your record contains your address, previous addresses, any court judgments or bankruptcies against you and a record of your repayments to your previous and current creditors.
If you have been refused credit but you’re not sure why, the first thing you should do is obtain a copy of your credit history by writing to one of the agencies. The most popular reason why you may be refused is that you have failed to make the repayments to previous or current creditors on time or have missed several payments.
Other factors which affect credit ratings include the number of applications for credit that you have made. Applying for credit to a number of lenders in a short period of time could indicate that you’re in financial difficulty. On the flip side, those with no credit history may also find it difficult to obtain credit as they have no repayment history that creditors can use to determine whether they will pay on time.
Lenders prefer to give money to borrowers that they can trace so being on the electoral roll and having a landline telephone number will help. In addition, being employed, owning your own home and staying with your bank for a long time also helps.
With all this information stored in your credit history, it is wise to check your credit report on a regular basis to ensure there is no inaccurate information which may stand against you should you apply for credit.