Credit Scoring is a way for lenders to know that you are going to be able to repay any money they lend you. If you are applying for a bank account, loan or credit card you will usually be credit scored, and a lender may check your credit history.
To work out your Credit Score you will be asked details about your income, your expenses, major investments (like a home), as well as any loans you may already have. A score will be calculated from this and, if you fail, they may refuse your application, offer you a weaker deal or smaller amount.
If you have been refused, you can always ask them to reconsider but remember that different lenders score in different ways so you may be successful with a different lender, and that each application will become part of your credit history – many refused applications can damage this history.
To understand how your Credit Score affects the cost of borrowing, click here.
Your credit history is held by a Credit Reference Agency – the main three are Experian, Equifax and Callcredit, and they will combine your credit history from a number of sources. You cannot stop lenders checking your credit history, but you can see your history and apply to have it changed if it is incorrect. Credit Reference Agencies will charge you to see your history, but cannot charge more than £2, they will also tell you how details can be changed.
Your credit report gives lenders an idea of whether you are likely to repay a loan or not. If they don’t like what they see, they won’t lend you the money. So it’s a good idea to do everything you can to protect it.
There are many different ways to improve your credit rating but the easiest way to make sure you don’t damage your rating is to avoid multiple applications for credit.
Advice on improving your credit score can be found at MoneyHelper.
If a commercial credit repair company approaches you, do not use their services – instead go direct to the Credit Reference Agencies if you feel a need to change your details, contact details of the three agencies can be found below.
For an explanation of how to check your Credit Report, follow this link.
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