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Understanding credit scores

If you’re considering applying for a credit card, loan, mortgage or other form of credit, it’s important that you understand what a credit rating is. Unfortunately, there’s a lot of conflicting information online, which can make things confusing.

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Lending Criteria

Many people assume that you can find out your credit rating by applying to one of the credit reference agencies like Experian or Equifax. However, each lender has its own unique criteria for assessing whether to approve an application, and so the score you get from one will be different to one you get from another. What you can do when you visit a credit reference agency is see your credit history.

Lenders assign you with a credit rating based on information taken from your credit history and the details you provided in your application- such as income, time spent living at current address, outgoings, etc. The higher your credit score, the more likely it is that the lender will approve you for the financial product you’ve applied for.

Because lenders each use different thresholds, even if your credit rating is less than perfect you may still be able to borrow from a lender that specialises in borrowers like you. For instance, Ocean’s credit booster credit card is open to those who may struggle to get a card from other lenders because they either have a poor credit history or no credit history at all.

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Credit history

Before you apply for credit it makes sense to check your credit history – for example there may be mistakes on it that you could correct before you apply. You can get a summary of your credit history from Callcredit, Experian or Equifax by sending them a request together with £2. both Experian and Equifax also have paid for services that you can sign up for, for a monthly fee. Callcredit has a free service called Noddle. it is worth checking all three agencies – because you won’t know when you apply which one your preferred lender uses.

You also need to make sure that you’re on the Electoral Roll, as this is one of the ways lenders verify that you are who you say you are and helps them reduce the risk of fraud.

When you check your credit history, you’ll notice that each of the credit reference agencies suggest what they think your credit rating will be. This can be a useful guide but keep in mind that only a lender can determine your credit score.

The methods of scoring by each agency also vary, which can be confusing. Experian gives a score of between 0 and 1,000; Equifax scores between 0 and 600; and Call Credit (Noddle) scores between 0 and 5. So if you get a score of 5 from Noddle and 1,000 from Experian, the difference isn’t as wide as you might think. And you may get an ‘excellent’ score from one agency and an ‘average’ score from another - but try not to worry as it’s ultimately the lender’s credit rating that matters.

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Credit blacklist

You may have heard rumours that some people are “blacklisted” and therefore can’t get credit from any lender. This isn’t true. There is no list of people that won’t be offered credit. Lenders will use the information on your application form and your credit history – and will make their own decision whether or not they want to lend to you. Just because you are rejected by one lender doesn’t mean that another lender won’t accept you.

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Applying

If you’ve checked that all the details in your credit history are correct and you think that it supports your application, you may feel ready to start approaching lenders. However, it’s worthwhile doing your research to find the lender and product that best suits you – and that you think you have the best chance of being accepted for. Do this and you could avoid having to make multiple applications for credit.

When you apply for credit, it often leaves a ‘footprint’ on your credit history that lenders can see. If you make several applications within a short space of time, it could give the impression that you’re desperate for funds – even if this is not the case. This may make lenders reluctant to approve your application.

To avoid having to make multiple applications, you can shop around for the most suitable deals using comparison sites. Searches on price comparison sites generally leave only a ‘soft footprint’ on your credit history, which isn’t taken into account by lenders.

For tips on improving your credit rating click here.

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Know if you're accepted before you apply with QuickCheck

  • Get credit - up to £1,500
  • QuickCheck won’t affect your credit rating
  • Get a fast response in 60 seconds
Check Now 34.9% APR Representative (variable)
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender