Why Do You Have a Credit Rating?
Credit reports play a very important part in our everyday finances, especially now that most of us live by using credit rather than cash.
The average Brit has up to five credit cards and at least one personal loan, which means many are fighting to meet repayments and keep a good credit score.
Having a good credit score opens many doors, it allows us to get the best interest rates and we have more products to choose from when we need a loan, credit card or mortgage.
Why do we Need a Credit Report?
When we apply for any form of credit, whether it be a mortgage, credit card, personal loan or that brand new sofa you could get on an interest-free deal, lenders need to assess how responsible a borrower you are.
In order to do this they need to delve into your finance past, look at your repayment history, what type of credit you have previously applied for and whether you have a history of bad debt.
This is where the credit report comes in. Your financial history, dating back to the day you opened your first current account, has been recorded and held by two leading credit reference agencies - Experian and Equifax.
Once a lender has received your application for credit, they approach these agencies to gain access to your credit report.
From this, combined with the information you supplied in your application form, the lender will make a decision as to whether to lend to you or not.
Why Can't I Provide the Information
Credit comes in all different forms, loans, credit and store cards, mortgages, even everyday items like a mobile phone bill or payments made to gas or electricity companies will be recorded on your credit file.
For every individual to have the responsibility of relaying this to a lender each time they wanted a new credit card or mobile phone contract would be far too big of a task.
Lenders also need to know about any defaults or missed payments or any County Court Judgements (CCJs) that you may have.
How Do They Use the Information
Lenders use this information, combined with the information supplied on your application form, to calculate a credit score. This score is based on the lenders own criteria, and every lender is different, so even if you have been refused by one, another may still give you credit.
Your score will them be compared to other similar profiles which allows the lender to 'predict' your likeliness to meet repayment deadlines.
Can I Access My Report?
You should regularly check through your credit report to make sure the information held is correct.
You can order a copy online at the experian or equifax websites for a small fee.
If there are any mistakes in your report, you can get them fixed. This is very easy if it is an error in your personal details, such as your maritial status, address or postcode.
However, if it is a mistake made by a lender, such as an unauthorised search or alleged outstanding debt, fixing it becomes slightly more difficult.
Firstly you would have to contact the lender in question and ask them to look into the problem. If you are right and a mistake has been made then the lender will need to inform each credit reference agency. Your should also ask for a letter to confirm that a mistake has been made and rectified by the lender.
Remember, you should always keep on top of your credit and maintain a good credit rating.
