Credit Rating
Ever wondered why you’ve been turned down for a new purchase or a loan?
Credit ratings seem to be a mystery to most people, as many don’t know
their rights, how lenders make their decisions, how credit scores are calculated
and how they can be challenged and improved.
The contents of your personal credit report can have a bearing on whether
or not you are given credit. Factors other than the information held on a credit
report may contribute to a lending decision as well (such as the information
you provide on your application form), but your credit report is important.
You have the right to view the information contained in your credit report
to make sure it is accurate. If errors are found, you are entitled to apply
to have them corrected. Having the ability to view and challenge your credit
report is important, as; in addition to providing the basis for a lending decision,
your credit rating may also affect the interest rate you are offered by lenders,
which could lead to more costly borrowing.
Credit reports are compiled by credit reference agencies using information
from two main sources:
1) The Public Record: e.g. electoral roll information, court judgments, individual
voluntary arrangements and bankruptcies.
2) Information provided by lenders and financial institutions: e.g. credit
accounts, credit applications and financial associations.
When you apply for a loan, the lender will typically contact a credit reference
agency to check the information on your credit report, in order to help them
calculate your potential creditworthiness and risk. These calculations are
done by the lender and may vary between lenders. It is important to note that
the credit reference agency does not offer any comment or advice and does not
know how the information a lender has seen will affect the lending decision.You
have a right to know which credit reference agency a lender has used.
Incorrect credit information
It is possible that the information on your credit file is incorrect, which
would then affect your credit rating. Your credit rating may also be damaged
if you have had problems paying utility or credit card bills in the past due
to illness, redundancy or the breakdown of a relationship, for example.
The only way to find out what information is held on you is to look at your
personal credit file held by one of the two biggest credit reference agencies
in the UK - Experian and Equifax.
If you do find information is incorrect you can add a 'statement of correction'
of about 200 words to your file, which will be supplied to lenders in the future.
How can you improve your credit rating?
1. Make sure you are on the electoral register as lenders use it
to confirm your name and address. Local authorities have also started compiling
a rolling register for people who have moved, so you won't have to wait a year
until a new list is compiled.
2. Ensure that you and other family members always pay your bills on time.
A lender will see information relating to your other family members when you
apply for credit and this may affect their decision. If you are estranged from
your family, you can ask the agency to separate the files.
3. If you are turned down, don't then make a series of applications for credit
in the hope of finding one lender who will give you money. These applications
will also appear on your file and you may look desperate for money, or even
worse, it may look as though you are trying to commit fraud.
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