Credit Rating

Spend any time at all looking for a finance product, and you will no doubt come across the term ‘subject to status’ or ‘credit worthiness’ disclaiming that the loan on offer isn’t available to everyone. What is usually not clear to those looking to borrow is what exactly the credit check involves, which is where this guide is designed to help.

The first thing to realise about a credit score is that it is not something that is stored somewhere and is checked by lenders, there is a commonly held belief that a person’s credit rating is held in a file somewhere, or on a ‘blacklist’ if they are not eligible for credit. This is simply not the case.

In reality, the credit rating of an individual is determined by the lender based upon certain information about that person’s credit history – and it is the history that is recorded in a file. As each lender will have their own internal methods for evaluating a person’s credit history and determining their score, it is possible for one lender to turn a person down, while another will be willing to lend to them.

There are two firms in the UK that compile and store credit history files, those being Equifax and Experian. The information that they compile comes from a variety of sources, including the electoral register, county court judgements and lenders who have previously lent money to that person.

From these sources, a wide range of information is obtained and recorded by the credit reference companies, the following describe in some detail all of the information that a credit report can contain.

Firstly, the file contains obvious details such as the name, date of birth, current and previous addresses of the individual. Also, any aliases for that person are noted, for example a married women will have their maiden name on file. All this information allows for a person to be uniquely identified. Electoral roll information is included, which allows for cross-checking of names and addresses – people not on the electoral roll may find that it harms their applications for credit because of this.

County Court Judgements (CCJs) will also be recorded if the person has had any in the previous six years, the records of these will show the date of the judgement, at which court it was given and if it has been settled (giving the date if so).

The main part of the file is concerned with credit agreements the person has previously held (again, the records go back for six years). Information on these details the name of the lender, the amount lent, the current outstanding balance and a record of the repayments made (on-time, late or missed).

One thing that most people are unaware of is that searches on a credit file are also recorded, meaning that every time a person applies for credit (and the lender checks that persons credit history) the details are recorded. This is something to be aware of, as if you apply many times for credit, but are turned down or simply do not go through with the application, it shows on the record – and multiple non-actioned applications are seen as a negative by future lenders. If you wish to see exactly what is being held on your credit history then you can do so, both credit reference firms mentioned above allow you to get your own credit report from them, which will be exactly the same information as any potential lender would see, for this service you will need to pay a small admin fee (around £2).

While in many cases the information will be of no real use to an individual, those who have found trouble in being accepted for credit may find it worthwhile getting a copy as it will give a clear indication as to where the problems lie, and there may even be errors on the record that are causing the problems – if so these can be corrected.

So, there you have it, credit ratings explained in full – there is no mysterious ‘blacklist’ to avoid, and no ‘credit score’ set in stone, just a record of your past credit and your progress in your repayments – and remember that the records only go back six years, so no bad ‘credit rating’ lasts forever.