Beginners Guide To Credit Ratings & Scores

In a world where it often feels like Big Brother is watching, it come as no great surprise that large amounts of information are accumulated concerning both businesses and individuals with regards to past and present financial statuses.

Whilst it might, on the surface, sound a little fishy and intrusive, it serves very practical purposes.

Basically, if you have ever taken out credit for business or personal purposes you will, in the vast majority of cases, have a credit rating held on you.

In either case, the initial compilation of your report is often instigated the moment you apply for a business or personal credit card.

A credit score is not simply a cloak and dagger method by which potential lenders can spy on your financial health. Neither is it secret, as you are able to check at any time to see if you have a rating and what information it contains. Being forearmed is being forewarned.

Reading your own report can help you to address any issues and turn it to your own advantage when applying for future credit, moving home or becoming the unfortunate victim of identity fraud or theft.

This basic introduction aims to touch on the initial wherefores and whys of credit ratings that are expanded upon in further detail on other pages.

What Does a Credit File Look Like?

Address Details

The reports firstly contain current address information from the Electoral Roll, besides past address details at which you have been based when you have made previous credit applications over a six year history .

Financial Details

The financial details contained in the reports show specifics about what credit you have and your payment history. Defaulted or late payments remain on your credit file for in excess of three years.

Evidence of more serious and deep rooted financial hardships, such as bankruptcies, County Court Judgements (CCJs) and Individual Voluntary Arrangements (IVAs) remain featured for in excess of six years.

Financial Associations

These sections give the details of other people to whom you are financially associated, for example, joint credit card holders or joint mortgages.

Whilst the specific financial details about associates are not included in your report, it is pertinent for lenders to know about them and potentially look in to them further, as their circumstances might influence your own financial stability.

Who Provides the Information That is Included in Your Credit File?

Personal

In effect, you provide your own information. When making credit applications, you give your consent to their lenders to share your financial information appropriately. Lenders, in turn, go about this in different ways, some sharing details of all account holders, others only contributing adverse details and some including information about amounts owing and timeliness of payments.

Public

Address details are obtained from the Electoral Roll and other financials details from the like of CCJs.

Who Looks at Your Report and the Information It Contains?

Anyone whom you ask to lend you money can sensibly carry out credit checks before making informed decisions. However, lenders cannot do so without your express permission – although your refusal might be equally as damaging to your borrowing prospects as a poor credit report. Credit scores are often allocated based on combined application and credit scoring information.

Not only do they provide lenders with a clear overview of your financial management ability and repayment records, but they can also influence the amounts they decide to lend to you.

Why Would You Check Your Own Credit Score?

Credit Applications

It can prove prudent for you to check your own rating before making new credit applications. If anything is amiss or incorrect, a timely opportunity is presented for corrections to be made in conjunction with the organisations responsible for the errors.

This can prevent future applications being unnecessarily turned down.

Identity Fraud And Theft

As many people are aware, identity fraud and theft have become worrying contributory factors to both online and offline modern crime. If identity fraudsters and thieves gain access to your personal information, they can hijack your existing accounts and also set up new ones under your name.

If you regularly cast a watchful eye over your own credit report, you are empowered to spot any incongruities early and look in to them before their levels of seriousness increase further.

Moving Home

Checking is not only utilised in the financial world of mortgage lenders. Landlords can also request permission from you, as their prospective tenant, to run a credit check on you before agreeing to let their property to you.

In some cases, even prospective employers can do likewise before offering you a position it you are a successful candidate.

How Do You Check Your Own Credit Rating?

There are a number of professional and reputable credit reference agencies who can provide you with an initial free credit check and your credit scores on a trial basis. All it takes is the filling out of a simple online form.

Not only is it an interesting exercise in its own right, but it resultantly gives you, as a borrower – or a borrower to be – an insight in to how you are perceived in the market place of your lenders.

As already detailed, it is also a means for you to take action to right any wrongs, besides using your information to help you towards more a more favourable report and higher score in the future.

That is not forgetting that is also a medium that you can use to protect your personal finances against criminal activities.