What is a credit rating?
Firstly, it’s important to recognise that your credit rating is devised by the lender you apply to and not the credit reference agencies themselves. Each lender has its own criteria by which it measures applicants – so if you’re turned down by one, it doesn’t necessarily mean you’ll be turned down by another.
Your credit rating is based on your credit history along with the information you provide when you make your application. Checking your credit history with the credit reference agencies lets you see what your lenders will see and means you can check for any possible errors contained within your credit file.
The better your credit history, the more likely it is that your application will be accepted as your history will provide the lender with evidence that you use credit responsibly. However, if you have a poor history (showing lots of missed or late repayments in the past 6 years) some lenders may be reluctant to lend to you as they won’t have the assurance they need that you will repay the money you’ve borrowed. If you do find a lender that will accept you it will usually be at a higher APR than is offered to those with the best credit histories.
Try not to worry too much if your credit history is not what you hoped as there may still be options. The Ocean credit card, for instance, is open to people with a less than perfect credit history.
Checking your credit history
There are three main credit reference agencies used by lenders in the UK: Experian, Callcredit and Equifax. Ideally you should check what information all three hold on you, as different lenders use different credit reference agencies.
It’s your legal right to request a copy of your credit report. Contact any of the agencies listed above to request your copy and they will send you one for a charge of £2, or you can view your report online.
A typical report will contain the following:
- Your profile information (name, date of birth, address)
- Details of your current credit accounts and any held within the last six years (including how much available credit you have and your repayment history for each account)
- How many credit applications you’ve made in the last six months
- If you’re on the Electoral Roll
- If you’ve got any CCJs, bankruptcy rulings or IVA records against your name
- If you’ve been a victim of fraud
- If you’re financially linked to someone (e.g. anyone you’ve shared a financial product with, such as a joint mortgage)
Once you have access to your credit history report, check through everything carefully to make sure there are no errors.
Getting mistakes put right
If there is a mistake on your credit history, such as an incorrect address, you should contact the lender and/or the credit reference agency listing the error to get it corrected. Failure to update things like your address on your current credit accounts, or to close an account you no longer use, could all have a negative impact on your credit report. If you’re linked to someone who you no longer share a financial product with (such as an ex-partner) you can ask for a notice of disassociation, which means that their credit history won’t impact yours.
Before you apply
If you’re planning to apply for credit of any kind, it’s important that you don’t make several applications within a short space of time. Usually, when you make an application for credit the lender will perform a “hard” credit search and these leave a mark on your credit history. Too many credit searches by lenders in a short space of time might suggest to other lenders that you’re desperate for money. However, you can check your credit file as many times as you like as this doesn’t leave a mark.