Key facts about credit reference agencies

Friday, 12/06/2015

If you’ve heard that having taken a payday loan or other fast loan will have caused irreparable damage to your credit rating, you may be understandably worried about your future ability to obtain credit. The media, however, occasionally fails to explain the credit rating system correctly, leaving consumers confused about their financial standing and unsure how to improve their chances of obtaining credit. Here are the main facts about credit ratings that you need to know.

Predicting the future

Credit reference agencies operate using a system of predictive scoring. This means that they try to anticipate how an individual will behave financially in the future, based on his past behaviour. If you have a very sparse history, it is more likely that a credit reference agency will award you a low score as it is difficult to predict with certainty what degree of risk you pose when borrowing money.

A history of county court judgements or late payments will clearly send a warning signal to lenders.

Therefore, building a positive credit history is important to improve your credit rating and increase the likelihood of obtaining approvals in future when applying for credit.

One size doesn’t fit all

If you are refused credit, it’s logical to feel that your name is lit up in lights on some sort of credit blacklist. In fact, this couldn’t be further from the truth. Sometimes customers with perfectly robust credit histories aren't offered the best rates of credit, because a consumer who is a ‘good risk’ isn’t necessarily the same as one who will be profitable for the lenders. 

Every lender has different criteria when assessing applicants, and being refused credit by one doesn’t mean you’ll be rejected by another. However, putting in multiple applications to different lenders in a short space of time smacks of desperation and might damage your credit rating.

What lenders do and do not know

When carrying out a credit search, lenders will only receive: personal data (your name and address, as stated on the electoral register); existing credit commitments, including amounts outstanding and a record of payments; and court judgements or fraud history, if applicable.

The credit search does not reveal information on parking fines, road traffic offences, your marriage, medical history, criminal record or salary. Only legitimate, relevant information relating to your application for credit will be seen and used as part of the credit scoring process.


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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk