Helpful Information - FAQs on Credit Rating
What is a credit score?
Credit scoring is a method used by lending organisations to help them assess the risk in lending money to individuals and business's. It is an objective, scientific way of judging the risk in lending money and is dependent on the past credit history of the applicant.
The information that is used to assess the credit score is held by credit reference agencies known as Equifax and Experian. However they are not informed about the outcome of the credit application and have no say in what the lender decides to do.
Who decides whether my credit is good enough to obtain credit?
The decision on whether your credit rating is of a level for granting credit is dependent on the particular lender you are applying for credit from. Each lender will have its own scoring system, which is calculated by using a mathematical equation. The variables that affect this are numerous and include:
• How much credit you already have. As a lender will not want to give you money if they feel you are over committed therefore may struggle to pay it back.
• How well these accounts have been run. This includes making payments on time to your mortgage company.
• Your income, how long you have lived at your current address, whether you are on the voter's role and whether you have a home telephone line.
The decision will then be finalised by an underwriter. Underwriters are the human aspect to credit scoring and they are usually highly skilled in reading credit reference information and making decisions based on it. They may have the power to override a credit scoring decision, by verifying some other information about the person, which will then make their application stronger.
If you are applying for credit for the first time then you will not have an existing credit history. Everybody has to start somewhere and it is therefore advisable to start with an application to your own bank.
Who can obtain access to my credit rating?
• Companies with whom you are apply for credit.
• Existing credit providers.
• Yourself, you can obtain a copy of your own file by contacting either Experian or Equifax.
Lenders have to be a member of the CAIS (Credit Account Information Sharing) in order to access any information and this is all operated in accordance with the Data Protection Act. This information is only available for the sole purpose of credit scoring and cannot be used for marketing to you.
Does applying for a lot of credit affect my score?
Any application for credit leaves a mark on your credit history known as a footprint. In itself this does not affect your credit rating. However a cluster of these footprints at a given time may highlight that you are being refused credit or that you are having financial difficulties. Therefore it is important to shop around before you decide on what credit facilities you apply for, to minimise the amount of searches against your name.
Credit searches can also uncover applicants who are trying to commit fraud. This will appear as a CIFAS on your history and will be investigated by the fraud departments of financial institutions. This may lead to criminal investigations, therefore it is imperative to always give correct information about yourself and your circumstances.
Credit references agencies are legally obliged to keep a record of all searches that have been done; however they only stay on your record for a year.
How long does any adverse credit stay on my credit record for?
All adverse credit stays on your credit history for a period of 6 years from the date of judgement. Therefore if you are issued with a CCJ, or enter into an IVA etc this will stay on your record six years from the start of the arrangement and not six years since from when it was satisfied.
Once a judgement has been paid or an arrangement adhered to, then it is marked as satisfied on your credit history. This may not automatically be done; therefore it is always beneficial to make sure that your credit profile is kept up to date.
The only time adverse credit can be wiped off your credit history is if the judgement is satisfied within one month of being issued.
Will my credit rating affect anybody else in my household?
Lenders are no longer are able to link information about people living at the same address unless they have joint financial commitments.
If you feel that you may be wrongly linked to a member of your household then you need to apply for a notice of disassociation. This means that your credit rating should not be affected by another family member's poor credit history.
Why does an impaired credit rating affect the APR I can get?
Lenders are bound by regulations, which mean they have to be sensible about their lending criteria and not lend to individuals who have a proven track record for not repaying debt. This is for your benefit, as it would be irresponsible to knowingly lend money to someone who has no way of paying it back.
This also protects the lender. Therefore if you have shown that you have been unable to commit to credit arrangements in the past, then you may be penalised by having to have a higher APR in future. This is because you are perceived to be a bigger risk to the lender in terms of repaying all the amounts due. The lenders who are prepared to take the risk are usually specialist or sub-prime lenders.
Can I do anything to repair my credit?
The first thing that you should do is to get a copy of your credit history from one of the credit reference agencies. You will then be able to verify whether all the information that is held about you is correct. Experian & Equifax will rectify mistakes as a matter of urgency as it does not benefit them to hold misleading information about people. Their contact details are listed below.
If all the information is correct, then you should make sure that you are recorded on the electoral role for the property in which you live. As this will clarify your status and make your credit application stronger.
Simple things such as having a home telephone line will also improve your chances of being accepted for credit. Underwriters will check for both of these things when making their final decisions.
Finally you will need to rebuild your credit rating. This is best done, by taking out small loans or credit cards and illustrating you are able to pay then back. Please note however, that you will probably have to accept an inflated APR, so do shop around for the best rate you can.
Once you have begun to rebuild your credit you should be able to apply for prime rates again and then transfer balances from the sub-prime lenders you have been using.
Equifax
Credit File Advice Centre
PO Box 3001
Glasgow
G81 2DT
www.equifax.co.uk
Experian Ltd
Consumer Help Service
PO Box 8000
Nottingham
NG1 5GX
www.experian.co.uk
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