Credit Scores and Credit Reference Agencies
Almost every adult in the UK has a credit score produced by a credit reference agency. These agencies rate your credit worthiness by keeping track of your bills, debts and repayments. A good credit score means you should be able to get a mortgage, personal loan or credit card. A bad one means you might even be rejected for a mobile phone contract.
Here is a quick guide to credit scoring and credit reference agencies:
A credit score is a number that is awarded to you to reflect how much or how little a risk it is to lend you money.
When you apply for different types of loans or credit, the lender will probably ‘credit score’ your application (they must tell you that they plan to do this) by awarding ‘points’ to you depending on your answers. This will help them decide whether to accept your application and if applicable, set your maximum credit limit.
If your total score reaches a certain level you will pass, however if you don't score enough points the lender might either:
- Turn down your application
- Offer to lend you a smaller amount
- Charge you a higher interest rate
Credit Reference Check
As well as credit scoring your application the lender might also carry out a credit reference check by using a credit reference agency.
These checks help lenders assess the risk of lending to you and reduces the risk of fraud by allowing them to look at the credit files that the agencies hold on most adults in the UK. The information in your credit file falls into three main categories:
Public Record Information
The UK Electoral Roll which is used to check:
- Names and addresses
- County Court Judgements (CCJ)
- Scottish Decrees which are awarded against people who have defaulted on debts
- Records of Bankruptcies
- Individual Voluntary Arrangements (IVA)
- Administration or Repossession Orders
Credit Account Information
Lenders share information about borrowers by registering it with credit reference agencies. This can show whether you have outstanding loans with other lenders and whether you have kept the payments up to date now and in the past.
This section includes credit checks carried out by lenders. A large number of applications made over a short period of time could be seen as an indication of over-commitment or even fraud.
Credit Score: Fail
Different lenders give different weights to the various parts of your application and some also set a higher pass score than others. Just because one lender turns you down, it doesn't mean that other lenders will make the same decision.
You can always try somewhere else. Just remember that each application will probably be recorded on your credit file.
Failing a credit score might also mean that the lender thinks you are over stretching yourself. It might be an idea to reduce the amount you would like to borrow to help you pass the credit score and also to make your debts easier to manage.
Credit Score: Why did I Fail?
Lenders don’t really like to reveal what they use to score an application for two reasons:
- They don’t want people to give false answers in their application to boost their score
- They don’t want their competitors to know how they choose their customers
However, lenders that subscribe to the Credit Scoring Guide or the Banking Code have agreed that if you ask them, they will give you a general indication of why you failed and also the name of any credit reference agency that was used.
Lenders look for stability and the ability to repay your debts. It will probably help your score if:
- If you own your own home
- Have lived in it for some time
- You have been in the same job for a while
- Your bank cards are registered at your home address
- You are on the electoral register
It will probably not help your score if:
- If you have other credit cards or loans
- You have made a lot of credit applications around the same time
- You have made late payments or missed payments on loans in the past
Lenders might think you are over-stretching yourself financially and turn you down.
Credit Blacklist: Does it Exist?
No, there’s no such thing as a credit blacklist.
Credit reference agencies only hold files of information on you. They don’t advise lenders whether or not they should lend you money or not. Each lender will use the facts given to them by the credit reference agency to help make its own decision. Even then different lenders make different decisions.
Credit File: Remove Incorrect Information
Under The Data Protection Act 1998 you have the right to remove or amend information in your credit file that is incorrect.
Ask the credit reference agency how you should go about doing this.
Credit File: Remove other People's Names
Your credit file will include the names of people you are financially linked to. For example, if you share a joint bank account or a mortgage, but it won't include any of the other persons financial details.
If your file shows you are linked to someone when you are not, you can ask the credit reference agency to amend your file.