Credit History and Rating

How will the Banks judge me?

Lenders use something called Credit History or Credit Rating in order to decide whether to agree to loans with potential borrowers. It is quite simply the history a borrower has in many different financial dealings. Any loans from the past, dealings with phone and energy companies and even the way you pay off credit cards can be included.

What data about me is shared and why?

Data is collected from creditors by one of three main Credit Reference Agencies (CRA), Experian, Equifax and Callcredit. There are thousands of different credit bureaus that get credit information on you directly from your creditors, but most of them come under the umbrella of one of these main three and report all the information they collect to them.

When you apply to a credit card company, such as a bank, they will gather your personal data off you and request all the information the credit bureaus have on you. They then use this to decide whether or not to lend you money. If they do, they then supply the CRA with data on how you pay the repayments in the future, further building your credit history.

The lenders want to know information about you so that they know what kind of returns they are likely to make, and whether you are likely to fall into rent arrears, judging by your past dealings. The CRAs gather this information and then charge the lender's who want to see it, which is how they make their profit.

Individuals can also access the data CRAs have on them, however you will also have to pay. Going through the three main CRAs will usually give you the option to have a certain free trial period, followed by a monthly or quarterly rate.

However, everybody has a right under the 1998 Data Protection Act to see their Statutory Credit Report for just £2. This is a basic version than the ones the CRAs will charge largely for.

What are Banks Looking for?

Nobody has a right to get credit, and it is up to the lenders who they lend to and why. A bank is a business and they are out to make a profit, and so if someone has a terrible credit history, they are going to be put off by the likelihood that that person could fall into debt arrears, causing the lender to suffer a financial loss.

On the other hand, it is possible a credit rejection could occur because the borrower has too good a credit history. If someone pays back their loans perfectly all their life, it is likely they will again for a new loan and so the lender will make minimal profit on them. Lenders are not obliged to lend and so can reject an application for whatever reason strikes them.

But it is not hopeless, a rejection from one lender does not mean a rejection from them all. Having been rejected from one, you can apply for another and they could accept you, because lenders look for general things but also certain things specific to their business. If you don't suit the needs of one, you may still suit the needs of another.

Keeping Your Credit History Clean; Some Things to Think About

  • Check your credit history and make sure the details are correct. Go direct to one of the three main CRAs, Experian, Equifax or Callcredit to get your Statutory Credit Report for just £2. It would be even better to check all three as each may have compiled different information. Mortgages or loans can get rejected on the grounds of having incorrect or conflicting data, so checking it could be worthwhile, especially before applying for a large credit deal such as a mortgage.
  • If there are mistakes, you should contact the CRA who issued that report to get it amended.
  • Close unused credit accounts, as they can pose a fraud risk if left open, something a lender won't want to risk.
  • Sort out address errors so all accounts are registered to your proper address.
  • Keep all personal information on all your applications the same. This will ensure there is no confusion and makes you look like a stable customer.
  • Keep up payments and don't miss any. Staying up to date with any loans, your monthly bills and paying at least the minimum amount to all will keep your credit history clean and make you look like a trustworthy and stable customer. Defaulting or falling into rent arrears can damage your credit reputation for years to come.

County Court Judgements

County Court Judgements (CCJ) are juridical orders that can be acquired in the event of outstanding debt arrears in order to make the debtor pay up. Getting a CCJ means the court has decided you owe the money to the person who took the case to court, and if you do not repay the owed money within a month it will be kept on your record for 6 years. This can make it hard to get credit.

It is possible to get the judgement set aside if you don't owe the money or if you did not receive the original claim. Furthermore, you can apply to get the judgement cancelled but will have to attend a hearing to discuss why you do not owe the money, but you may still have to pay £80 in court fees.

Of course, if you do not attend the hearing, you will automatically have to pay the amount.

Student loans

The BBC reported that Equifax specifically stated student loans are not recorded on their credit reports.

Payday loans

Payday Loans have recently come under inspection by the BBC and it has been found that having a payday loan on your credit history can make some banks give "an instant decline" on loans to people with a payday loan on their credit history, despite how well or accurately they paid the loan back. Payday Loans may seem like a useful short term fix, especially if you can pay them back immediately, but they can have long term effects. it is advisable to avoid them altogether if you plan on getting a mortgage or loan within the next six years.

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