For many people, a credit rating can be the bane of their lives. But what is it, who decides it and what implications can this elusive score have on your life?
Credit rating is the score given to an individual that gives an indication to lenders as to how likely the borrower will be able to keep up with repayments. Obviously, this is important information to the lender, but this is by no means the ultimate be all and end all when it comes to approaching a lender.
Credit ratings are used when companies assess whether someone is eligible for taking out a loan, mortgage, store card, credit card, mobile phone contract, car insurance etc. The list is endless. Most of us will have had our credit ratings checked by a third party at some point, but perhaps were unaware.
IN the UK, there are three main bodies that hold information about our credit history. They are Experian, Equifax and Call Credit. Each of these credit agencies gather various pieces of important information to sell on to lenders in order for them to predict our financial behaviour when lending. So, what information do these agencies have about us?
Credit reference agencies take information largely from past credit accounts. This gives them vital information such as name, age and address. They also have access to information about when your credit report has been looked into by potential lenders. Although they do not hold information on whether the application was successful, it could be quite obvious that you have been denied if there are a number of checks over a short period of time. Each credit report check stays on the report for up to two years.
Details of your current account provider will be included on your file but information is limited. They can provide relevant information, such as if you’ve entered into an unauthorised overdraft. In addition, public record information can be applied to your report for up to six years, including bankruptcy, county court judgements and property repossession.
There are countless myths surrounding credit ratings such as the existence of a ‘credit black list’. In reality, each credit reference agency scores people differently and this score is just one factor that is considered when ultimately deciding whether you should be eligible for borrowing.
If you do find yourself being refused credit, there are ways to remedy the situation, but it will take time. The best place to start is to check your credit report with the various agencies regularly, perhaps once a year, so you know exactly what position you’re in. Go through your details with a fine-toothed comb and weed out any mistakes that could be detrimental to your report. Make sure you are on the electoral register. If you fail to sign up, you will find it extremely hard to get credit anywhere.
If you have no credit history you should start now. Find a good deal on a credit card and use it wisely. Make payments on time and always stay within your credit limit. This is also a good way to boost a poor credit rating, but the most obvious and effective method by far is to reduce your debts.