- Learning about credit scores
- Effects of credit scores on borrowing
- Checking your credit file
- Improving a credit score
- First time applicants for personal loans
My Credit Score
If you have ever borrowed any money, whether on a mortgage, a credit card or a loan, you will have a credit history and been allocated a credit score. Even if you have not borrowed money but have ever missed payments for utility bills or been subject to a county court order for non payment of a debt, these facts will be recorded on your credit history file.
A credit score is worked out using a mathematical equation that factors in every piece of information that relates to borrowing, making payments or owing money. This equation produces a figure which lenders use to work out whether you will be able to make the repayments on a loan. It also allows a lender to calculate exactly how much of a risk there is of a default.
Credit Score in the UK
Learning about credit scoring in the UK is very useful as this is one of the tools that lenders use when they make a decisions for fast approved personal loans. There are lots of other factors involved in the decision making such as employment status and residential status but there is no doubt that credit scoring is an essential part of the process.
How Does A Credit Score Affect My Borrowing?
A credit score will play a key role whenever you make an application to borrow. A high credit score means you are viewed as a lower risk and this in turn means you are more liable to be accepted when applying for a credit card, mortgage or cheap personal loan. Credit scoring also affects the cost of borrowing so if your score is high you are likely to be offered a more competitive rate of interest than if your score is low.
A lender uses the facts from an application and the credit score on your credit file and they may also have information stored on their own files if you have previously taken out a loan with the same company.
Lenders And Credit Scores
Each lending company has its own policy of scoring applicants. So, if you are refused by one lender you may be accepted by another. But, it is important to look into why you have been refused before you make another application as multiple credit applications can adversely affect your credit score.
Factors That Affect Credit Scores
Owning your own home or living at one address for several years can help to improve a credit score. Being registered on the electoral roll will also help as will working for the same employer for a long period of time. Personal loans for unemployed people can be harder to locate, but they are available in the UK. Lenders prefer applicants who show stability as well as a good record when it comes to paying bills.
Paying utility bills on time and having no financial connection to anyone with a poor credit score will also boost your chances of getting a personal loan.
So, you can see that your credit score can affect borrowing either favourably or adversely. A lower score might mean you get offered a loan but at a higher rate of interest or you may not be able to borrow the amount you want or you may be turned down for the loan. A high score increases the chances of successful borrowing and you may get a much more favourable rate of interest when you apply for a personal loan.
Can Interest Rates Be Increased?
Credit scores can also affect the rate you are currently paying for your borrowing as lenders often re-evaluate certain groups of borrowers. If you fall into one of these groups then interest rates could rise. This will not apply to fixed rate personal loans but could apply to a credit card.
However, under the lending code of conduct, lenders are not allowed to increase rates within the first year of borrowing and must always advise you of the reason behind any increase. You will also receive 30 days notice before any increase so that, if you so choose, you can pay off the balance in full before the rate rise.
Checking A Credit File
It is quite simple to make a check on your credit report before you make an application for a personal loan. There are three major credit rating agencies in the UK and these are Experian, Equifax and CallCredit.
What Information Is In A Credit File?
A credit file holds a host of information that lenders use when making a decision about a loan application. Details about bank accounts, credit cards, catalogue accounts, utility companies and any outstanding loans are held on a credit record.
Missed or late payments are also recorded as are any county court judgements for non payment of debts plus any individual voluntary arrangements that have been agreed to pay off debt. If you have been declared bankrupt this fact will also show up. The credit record also hold details of any people with whom you have financial links (joint credit or debts) and if you have an agreed overdraft with your bank this will also be recorded.
Finally, certain personal details are also shown such as whether you are registered to vote, your date of birth, address and previous addresses and if you have been subject to identity fraud.
Personal Details Not Held On A Credit File
A credit file will not hold details of the following:
- Marital status
- Political affiliation
- Medical history
- Criminal record
- Utility accounts and mobile phone contracts unless they are in default
- Credit records over six years old
Is A Credit Record Confidential?
A credit record can only be viewed if you give your permission. When you apply for a personal loan and sign the application you will be consenting to the lender to have access to details on your credit file.
Credit Score Check
There is a statutory obligation for credit agencies to provide you with a copy of your credit report and this costs just £2. Reports can be received online or you can request a written copy.
This statutory report contains a summary of the credit history. As the service is so cheap it is a good idea to get one from each agency to make sure that the reports each have the same information and that there are no errors.
Be aware that this summary of a credit file does not include the actual credit score and that this piece of information can be obtained but you will need to pay more for it. However, it is not always important to know the score you have been allocated since all lenders do not use the same score when deciding whether to agree to an application for a personal loan.
Why Should I Make A Check On My Credit File?
It is always a good idea to make a periodic check on your credit file. This will ensure that there have been no errors and will also allow you to see whether any missed payment information has been added erroneously.
Taking a regular look at the file will not affect your credit score and there are certain times when it is a good idea to make a check. Look at your credit file before making an application for a personal loan, credit card or mortgage and you can be sure that the information is correct before you make the application.
Credit Score Help
If you have checked your credit report and found errors you can get these put right by contacting the relevant credit reference agency. The agency must correct the mistake within 28 days or tell you why they disagree with your complaint.
In this period the agency will mark your report as ‘disputed information’. Agencies rely on lenders to provide information so it is also worthwhile contacting the lender to ask them to make a correction to the information that they have supplied.
If there is incorrect information about your personal circumstances i.e employment or residential status, a notice of correction can be applied to the file.
Low Credit Scores And Accessibility To Borrowing
A low credit score will affect your ability to borrow money on a personal loan and might prevent you from borrowing the amount you need or might result in a higher interest rate being offered.
There is a long list of factors that affect credit ratings and these include high levels of debt, multiple occasions when payments have been missed or were late, multiple applications for credit and credit cards that you have but do not use. Lenders are interested in how much credit availability you have and not just the amount that you have actually used.
If there are mistakes on the report this can also lower the credit score. Applicants who are not on the electoral roll get a lower score and if you constantly move addresses this can also have a detrimental affect on a credit score. Reports in the UK show that your postcode can also have an adverse or positive affect on your credit score. Here are the UK’s highest ranking postcodes districts by score.
|Rank Area||Postcode||Average credit score|
|Kingston Upon Thames||KT||396.3|
|Lerwick Shetland Islands||ZE||390.91|
|Kirkwall Orkney Islands||KW||374.99|
|South West London||SW||373.93|
– Source: ClearScore
How To Improve A Credit Score
Short Term Steps To Improve A Credit Score
In the short term there are a few things that you can do to make improvements to your credit score. These include registering on the electoral roll, cancelling credit cards that you do not use and to stop applying for loans or cards.
Long Term Steps To Improve A Credit Score
In the longer term, the best way to improve a credit score is to make sure that you always pay on time and if possible clear off some debt. Some money advice websites suggest taking out a pre-paid credit card which you can use to restore your reputation as a good payer. However, these kinds of cards do levy fees which can be high.
Under no circumstances should you consider using a so called credit repair company. These companies cannot do anything that you cannot do yourself to improve your credit score.
Low Credit Score Personal Loans
First Time Applicants For Personal Loans
If you are a first time applicant for a personal loan it might be difficult to get accepted simply because you have not borrowed before. Your credit score is based upon previous borrowing so if this is your first time your score may be low.
A low credit score can be improved before you apply for a loan and there are a few simple steps to take if you find yourself in this situation.
First open up a bank account and make sure that it runs smoothly. Lenders like to see regular sums going into an account and no unauthorised overdrafts or bounced payments. Opening and making use of an account where direct debits are set up for regular monthly bills will help to build up a credit score.
Make sure that you are registered on the electoral roll and that you have no financial ties with anyone who has a poor credit record. If you are linked to someone who has a record of default this can affect your own score.
If you follow the above tips before applying for a personal loan there is a much greater chance of your application being successful.
Credit Scoring, Loan Applications And Blacklists
Contrary to the popular myth, lenders in the UK do not have blacklists of people to whom they will not lend. Similarly, all lenders do not apply a set credit score and each lender has its own criteria when making a decision about a personal loan. You may find some lenders will authorise loans to applicants who have a poor credit score but these will usually be at a whopping rate of interest.
One of the most important things to consider when applying for a personal loan is whether the lender is ethical and reputable. Don’t be sucked into applying for a personal loan where you are charged very high rates of interest as this route is unlikely to help your financial situation. If you understand the rules about credit scores there is a much better chance that you will be able to secure a personal loan at a reasonable rate.
Your Credit Score: Summary
What is a credit score and how do they work. Factors which affect credit scores and how credit scores affect applications for a loan. When interest rates can be increased. How to check a credit file and when you should do it.
Short term and long term steps to improving a credit score. Personal loans and first time applicants. Credit scoring for loan applications and blacklists.