Things you should know about credit ratings

When it comes to credit ratings, there is far too much misinformation spread among not only members of the public but the media as well. It is important that you as someone who will inevitably lend money in your lifetime understand how credit ratings work. In this blog, we are going to take a look at important things you should know about your credit rating.


There is no “universal” credit rating

Credit rating blacklists do not exist. In fact, if you wish to borrow money from any lending institution, they all use different methods of scoring. So if you are rejected by one, try others. You may be approved on their scoring system. Before you do, check for the reason why you were rejected. A poor credit history or a long record of non-payments means most institutions will not lend you money.

By using credit scoring, lenders try to predict your behaviour

Obviously, if you are starting out as a young person, this is not particularly easy to do as you will not have a credit history. When applying for a loan or other form of credit, a credit check is performed. Here the lender uses your credit history and other data, applies it to a calculation and sees if you are credit worthy. By having a history to fall back on, they can predict how you are likely to behave payment wise in the future. Building a credit history is important.

It is about the future

Sometimes people are rejected despite having excellent credit records and having never missed a repayment. There could be a number of reasons for this.

  • You may be rejected for a credit card application as you always repay accounts in full. They want people who do not default but remain in debt, always just paying the minimum amount required each month.
  • For banks, scoring is done with future products in mind – products that they want to sell to you.

Lenders already have plenty of information about you

It is pointless trying to hide anything from them, they already have so much information about you. For this reason, it is best to present yourself in the best light possible.

  • The application form

Always fill in the application carefully. Do not make up any figures regarding your income, monthly expenses or debt.

  • Previous applications

If you have applied for credit products at a particular lender before, they will have all your details on record and cross check them. If you were successful with a particular bank previously, reapply with them for other products as they are more likely give approval, especially if you paid timeously.

  • Other credit information

Lenders will approach all credit reference agencies to get information about you if they have none. These include Equifax, Experian, and Callcredit.

  • Fraud

A potential lender will also look into your history to see if you have committed fraud at any time.

The information lenders do not have about you.

This includes:

  • Arrears in council tax payments
  • Fines
  • Race
  • Religion
  • Ethnicity
  • Salary
  • Any savings you might have
  • Your medical record and history
  • Whether you have a criminal record
  • Whether you pay child support.

The product a lender approves is determined by your credit file

In other words, lenders might advertise a loan with a specified interest rate for repayments, but when you apply, your rate is in fact higher. This is all determined by your credit file, and the lender will cover themselves through the terms and conditions of the loan.

Credit scoring affects many areas of our lives

Credit scoring is used in the following areas when we apply for certain financial products:

  • Mortgages
  • Credit cards
  • Loans
  • Mobile phone contracts
  • Household and car insurance

Keeping a favourable credit rating goes a long way to ensuring that you will receive the credit product you apply for.