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Credit ratings
Whenever you try to borrow money the lender will inevitably want to find out if you are creditworthy and to do this they will perform a credit check on you. To do this the lender will request a credit score form a credit reference agency (the two main ones are Equifax and Experian). The agency will compile a credit rating on you based on a number of different factors including whether you are listed on an electoral roll, any problems paying previous debts and whether you have any county court judgements or are listed as being a bankrupt.
The credit reference companies then provide this rating to the lender who decides whether to lend you money or not depending on their own lending criteria. Remember the lender is out to make money from lending to you and is really interested to find out whether you would make them a nice little profit or end up a bad debt and costing them money. Just because one company turns you down another lender may not if they have different lending criteria and are more willing to accept a greater risk.
If you find yourself being turned down for credit then the first thing you should do is to check your credit history to ensure that your record is accurate and that it does not include any mistakes or errors. To do this ask the lender which agency they used and for their address. Under the Consumer Credit Act 1974 you have a staturory right to see your credit reference files by simply writing to them, enclosing a cheque for £2 and a list of your previous addresses. The agency must reply to you within 7 days.
When you receive a copy of the information shown on your files you should check everything shown thoroughly to ensure it is accurate. If there are any errors on your file you should write and ask for these to be corrected. If the agency refuses to amend your file you are allowed to enter your own comments to their file as a ‘notice of correction’. You cannot however ask them to remove accurate inforamtion just because it will give you a lower credit rating.
You do not have to be refused credit to see what information is held in your files by credit agencies and some people request this on a regular basis if they believe they have been the victim of identity fraud. As the demand by individuals for information on their credit rating has increased the credit reference companies have decided to capitalise on this and to increase their own profits and have now started to sell you a ‘monitoring service’ which provides regular updates on your credit score.
These monitoring services generally offer ‘free trials’, although you have to provide them with your credit card details or set up a direct debit in case you do decide to continue with the service. However, you can simply sign up for the free trial, receive your free credit report and simply cancel the service without it costing you any money. It is important to remember to cancel the service as otherwise it will work out to be more expensive than simply paying the £2 cheque to start with.
To improve your credit rating you should ensure your name is on the electoral roll and spread credit applications out because if you have a lot in a short space of time this looks suspicious and can damage your score. Your credit rating will also improve if you can make any repayments on time and avoid being in arrears. Another idea is to cancel any unused credit cards as having access to a large amount of credit can be viewed as a bad credit risk.
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