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Credit Ratings Explained

You will most probably heard of or seen reference to credit ratings when dealing with any form of loan, so what exactly is a credit rating? And what factors influence whether you have a good or a bad one? Below is the main information that you need to give you a clear understanding of the credit check process.

The first thing to realise is that your credit rating is not simply a case of good or bad, or even a rating in that sense at all – the credit reference agencies simply provide the potential lender with salient information regarding your credit history, it is the lender that determines your credit worthiness based on their own systems and the information provided by the reference agency.

So what exactly is in this seemingly mysterious credit report on which so much is decided? Quite a lot, is the answer, the credit report details a number of areas, which we will outline next, but one point to remember is that the report covers a period of six years.

Your personal details are kept on file insofar as your name, date of birth, current and previous addresses, this allows the records to be uniquely tied to the individual. Any alias used in the past are also recorded so records can be traced, for example someone who marries will have their maiden name as an alias.

Information from the electoral roll is also included, if you are not on this then you may find that lenders are less keen to provide credit, as the electoral roll allows then to verify your address and any previous addresses.

All of you credit agreements for the previous six years are detailed, including information on the lender, the loaned amount, the current outstanding balance, and the timeliness of your repayments, which is why it is important not to miss payment dates. Defaulted agreements are also included in the listings.

If you have had any county court judgments against you within the six year period, then these will show up, detailing at which court and at which date the judgement was passed, and the date on which it was settled if indeed it has been.

Previous searches are also recorded, every time that you apply for credit and the potential lender performs a credit check, and the details are recorded. Having a large number of searches in a short timescale may be seen as a warning sign by lenders, as it could indicate that you were turned down.

There is also other information included, such as so called ‘gone away records’ for those who have moved house and left a debt behind on it, and fraud information where appropriate.

As you can see, potential lenders have access to a wide range of information regarding you and your credit history. How this data is used is down to the individual lender, but the main points are whether you have defaulted on previous loans or have been late on payments.

What can you do if you have a bad credit rating? There are steps you can take to improve your situation; the first thing to do is to request a copy of your credit report (this can be done at: www.experian.co.uk or www.equifax.co.uk for a small fee). This will allow you to see where the problems lie, if you do have outstanding debts try to settle them (a debt consolidation loan may help here, as they are intended to help those with unsettled debts). If any of the details are incorrect then you should apply to have them corrected, you can also apply to have a note from yourself included with your file to explain exceptional circumstances.

Hopefully this will have taken away the mystery surrounding credit ratings, and you will now have a clear idea of what is involved and how they work, and if you do have credit problems you will be better equipped to start to put them right.